Inflation Versus Our Budgets

The effects of inflation are proving hard to stave off, and we are all feeling it on our budgets. From food to gas to home repair products, prices seem to be increasing every day. The Federal Reserve is expected to continue raising interest rates to fight inflation. And although their actions have made an impact, the Federal Reserve noted that inflation is stickier than it had predicted.[1]

This is all to say that inflation may be here to stay. You might be thinking, “What can I do to mitigate the effects of inflation on my budget?” While inflation is nearly impossible to avoid, there might be ways to minimize its effects.

Inflation Finds its Way to your Wallet

Inflation has impacted oil and gas prices, food, rent, and travel the most. To put that in perspective, meats, poultry, fish, and eggs, saw a 14.2% increase year over year, and gas saw a 30.2% increase year over year, compounded by the Russian-Ukrainian conflict. In addition, airline fares increased 37.8% due to supply chain shortages and COVID-19 travel bans.[2] And now, rent inflation is pushing the cost of housing even higher than it already is.

These numbers may not have a great shock value now, but when your budget is covering less and less of your costs of living, the effects of inflation become all too real. However, there are ways to mitigate inflation by isolating segments of your budget and spending less on certain categories of your budget. But in addition to that, it’s important to understand how your income sources in retirement may be affected by inflation as well.

Protect Your Income Streams from Inflation

For working people, inflation is a question of adjusting their budget to accommodate price increases and finding income, wages, or raises in the future that match inflation. Savings don’t usually have to be withdrawn and can be reinvested to potentially recover from downturns and grow at a good pace with inflation. But for retirees, your savings become your income, subjecting you to the rising costs of living. This means that not only is your budget tighter now, but your income for the future may not have accounted for the rising costs of living. Couple that with a bear market, and your retirement accounts could take a large hit, further compounding the problem.

Inflationary periods are difficult for retirees to get through, but it’s not impossible. There are financial tools and investment strategies out there that can protect against inflation or other risks you may be worried about. Talking to a financial professional is your first step toward protecting your retirement.

In calm markets, it can feel easy to see your retirement accounts meet your goals. But when the water gets choppy, it’s important to have a team of experts supporting you and your retirement to help you get through unexpected economic environments. Talk to us today to get started on your path to a comfortable retirement.