December 07, 2021

Greetings Thrifty Friends,

Inflation has been in the news more and more, recently. According to the Labor Department the consumer price index increased 6.2 percent from just one year ago, but the CPI calculations do not tell the whole story. While some products have only gone up 5 or 6 percent, and others have actually gone down, over all the cost of living has gone up dramatically. The cost of some food staples have gone up 10 percent or more, while the cost of heating has gone up between 30 and 100 percent, depending on where you're looking!

So how can you insulate yourself from this huge drain on your financial resources?

Lowering your thermostat a couple degrees and planning for leftovers when food shopping are good strategies in the short run, but where inflation really hits hard is savings. If you have $10,000 in a savings account, like most responsible people should, you just lost 620 bucks since last year according to the consumer price index. So if you can't keep your money in a savings account without losing money, what can you do with it?

Keep pinchin' those pennies,
Penny

P.S. Did you miss an issue? You can read every issue from the Gophercentral library of newsletters on our exhaustive archives page. Thousands of issues, all of your favorite publications in chronological order. You can read AND comment. Just click GopherArchives


Need Cool Gifts For Kids? This Video Shows What Kids Really Want!

TODAY'S THRIFTY TIP:

Invest in a Home

Oddly, during high inflationary periods, the right kind of debt can save you money, like buying a home to live in. Real estate is a good investment. If you get a fixed-rate mortgage, you end up paying off future debt with cheaper currency if rates increase. Since home prices tend to increase on an average year-over-year basis, the fact that your payment is fixed will counteract the effects of inflation. Of course, while interest rates are low right now, home prices are sky high, so unless you have a lot of cash lying around it would probably be wise to wait for the market to cool down a bit before buying.

Get An Auto Loan

Interest rates on auto loans are also incredibly low right now. If you expect inflation to remain high, it makes sense to finance your car purchase for the same reasons it makes sense to finance a home purchase. Plus, with inventories so low dealers are willing to pay top dollar for trade-ins right now. If your current vehicle is paid off or close to being paid off you could make a significant downpayment with just your trade-in. Finally, if you are thinking about purchasing a new car, make it as soon as you can afford it. If inflation is at 5% per year, a car that costs $30,000 this year will cost $31,500 next year, and it will only go up from there. The sooner you pull the trigger on the purchase, the less you'll pay.

Invest in Stocks

Despite the lack of confidence most people express about stocks, owning some equities can be a very good way to combat inflation. If you have money to invest in a period of inflation, your best bet is to put it into stocks (or mutual funds that invest in stocks) and other equities. They can gain and lose value in the short term, but they offer you the best chance for a real long-term return that beats inflation. And since the value of precious metals are usually inversely proportional to the value of the dollar, investing to a limited extent in gold and silver is a good idea, too!

Always maintain an emergency fund

However, you can't simply spend every dollar you have. Even when your savings are losing value, you still need some money set aside for emergencies, and you still need to save for retirement. For these essential savings, your best bet is to look for investments that offer a better real rate of return than a savings account.