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Are you seeing your energy, gas, and grocery prices increase? When more demand than supply occurs, prices rise, and we call this inflation. Some say the question is whether or not inflation is transitory (temporary). At Edgewater CPA Group, we want you to stay calm and be prepared no matter what happens. Therefore, we put together this list of five things you can do to protect yourself against inflation.
1. Don’t Make Emotion-Based Decisions
Inflation impacts businesses and individual portfolios differently. Not everyone shares the same investments, financing, and strategy. One of the worst things both business owners and individuals alike can do is make decisions based on emotion. When you make financial planning or accounting decisions based on fear or other emotions, you can make mistakes. To protect against inflation, we encourage you to speak to a financial advisor to review your strategy and reset, if necessary.
2. Keep Tabs on the Federal Reserve
The Federal Reserve makes monetary policy based on economic conditions. Their decisions significantly impact the economy in response. While the Fed already indicated they would raise the federal funds rate by .25 basis points, many analysts expect the same increase every quarter in 2022. Moreover, the Fed indicated it would buy fewer bonds and begin to shrink the size of its bond portfolio.
3. Consider Tech to Diversify
A recent Kiplinger article states that technology companies are more resistant to inflation. Thus, it suggests reviewing your investment portfolio to consider making changes. In addition to how the technology sector performs during inflation, the fact also remains that artificial intelligence and deep learning continue to expand exponentially, which makes both good opportunities. Finally, more people also look at cryptocurrency as an option. We aren’t providing investment advice in this article. However, whatever your investment, we can help you with tax preparation and filing.
4. Reduce Spending
When inflation hits, your spending dollar doesn’t go as far. In turn, you have less money to spend. Therefore, now is an excellent time to review your spending and make adjustments. Whether you are a business or an individual, we recommend sitting down to do a financial inventory. Take a look at your monthly spending specifics and determine what you need to reduce or cut.
5. Create an Emergency Fund
Everyone should maintain a cash reserve to cover three-to-six months of living or operational expenses. While this isn’t new information, it is especially relevant when we consider the pandemic’s impact. It also applies to inflation. Reserving a year’s worth of expenses is even better. If you don’t have an emergency fund already, we encourage you to save for that now.
Professional Financial Services
We understand we live in uncertain times. This article doesn’t have all the answers, but we hope it gives you a place to start. Edgewater CPA provides professional bookkeeping, accounting, and financial services in Carmel, Fishers, Westfield, Zionsville, and Evansville, Indiana. Call (888) 317-4835 to schedule a consultation or request an appointment online.
Sources: https://www.cnbc.com/2022/01/26/fed-decision-january-2022-.html, https://www.kiplinger.com/personal-finance/603306/8-ways-to-insulate-yourself-from-inflation