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Safeguarding Your Money and Your Savings from Inflation

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The U.S. Bureau of Labor and Statistics, reported that the core inflation rate, excluding food and energy prices, rose 3.6% over the past year. In recent years, inflation has emerged as a pressing concern for individuals and families trying to safeguard their financial future. As the cost of goods and services rises, the purchasing power of our savings can erode, making it crucial to understand how inflation impacts our finances and to develop effective strategies to mitigate its effects.

Understanding Inflation
Inflation is the rate at which the general level of prices for goods and services rises, leading to a decrease in the purchasing power of money. A moderate level of inflation is typical in a growing economy. However, when inflation rates surge, the cost-of-living increases, and the value of savings can diminish more rapidly.

The Impact of Inflation on Savings
Again, inflation leads to the erosion of purchasing power. As prices rise, the same amount of money buys fewer goods and services. This means that money saved today will have less buying power in the future. For instance, if the annual inflation rate is 3%, a basket of goods costing $100 today will cost $103 a year from now. Over time, this can significantly reduce the value of our savings.
Interest rates on traditional savings accounts often fail to keep up with the inflation rate.  If a savings account yields 1% interest annually but inflation is at 3%, the real value of that savings is effectively decreasing by 2% each year. This decrease highlights the importance of seeking higher-yielding investment options to preserve the value of savings.

Strategies to Combat Inflation
To protect savings from the ravages of inflation, consider implementing the following strategies:
Review and Adjust Your Budget: Regularly review and adjust your budget to identify areas where you can reduce costs. This might involve reducing discretionary spending, finding cheaper alternatives for necessary expenses, or negotiating bills and services. Maintaining a flexible and adaptive budget helps manage the increased cost of living associated with inflation.

Adjust Savings Strategies
Review and adjust your savings strategies regularly. This could involve shifting funds to higher-yield accounts, certificates of deposits (CDs), or exploring other low-risk savings options that offer better returns compared to traditional savings accounts. While they may not fully counteract inflation, they can provide better returns than traditional savings accounts.

Develop Additional Income Streams
Having multiple sources of income can provide financial stability and cushion against inflation. This could include part-time work, freelance opportunities, or monetizing hobbies and skills. Diversified income streams can help cover rising costs without significantly altering your 

Reduce Debt
Paying off high-interest debt, such as credit card balances, can be an effective way to protect against inflation. As inflation rises, so can interest rates, making existing debt more expensive to manage. Reducing or eliminating debt can free up cash flow and reduce financial strain.

Consult with an Investment Advisor
To protect your savings from inflation, consider consulting with an investment advisor. They can help you explore strategies like investing in Treasury Inflation-Protected Securities (TIPS), diversifying your portfolio with stocks, real estate, and commodities, and investing in tangible assets like real estate or gold.  An advisor will tailor these strategies to your specific needs, ensuring a comprehensive approach to safeguarding your wealth against inflation.

Inflation poses a significant threat to the purchasing power of savings, but with the right strategies, we can mitigate its impact. 

[1] Thrivent. (2023, October 6). Exploring inflation's impact on your investments. Retrieved from Thrivent

[1] Kurtz, A. (2023, March 10). How inflation affects your investment strategy. NerdWallet. Retrieved May 22, 2024, from

Published May 29, 2024.