The best hedges against personal finance inflation

Inflation was already a stone’s throw from 8% before the outbreak of the war involving two countries accounting for a large share of energy and agricultural commodities worldwide.

It wouldn’t shock me to see this number go up to 10% in the coming months.

Working in an industry obsessed with markets, I find that most of the questions people now ask about inflation come from their portfolio perspective.

Should I Buy Goods?

How about TIPS?

Is it too late to buy Energy stocks?

Have you seen the returns of Series I Savings Bonds ?!

How do I protect myself from inflation ???

As I see it, the time to prepare for inflation is in advance, not while it is happening.

From 2009 to 2020, the US stock market grew more than 13% per year above the inflation rate. If you’ve been a long-term investor, you were protecting yourself from high inflation before it even got here.

Regardless of how you manage your investments to account for higher prices, there are other ways to hedge inflation beyond your portfolio.

Here are some ideas for the best personal finance inflation hedges:

A Costco subscription. Are the prices going up at Costco just like other grocery stores? Safe. But buying in bulk is a good way to protect yourself from further price increases if you arrive.1

Your Costco subscription also includes slightly lower gas prices, which at least pay for your annual subscription and then some.

Plus, you can still get a Costco hot dog and soda for $ 1.50, the same price as 1985 (I’m only half kidding here).

30-year fixed rate mortgage. The only reason to invest in the first place is to improve your standard of living. If you just buried all your money in your garden, it would eventually lose its value over time:

You can think of debt in the opposite way. With debt your liability is what loses value over time and that’s a good thing. This is what makes a low-interest mortgage one of the best inflation hedges on the planet.

The average selling price of an existing home in the United States is now around $ 350,000. Assuming a 10% down payment, using the 30-year average mortgage rate over the past 5 years of 3.7% would give you a monthly payment of approximately $ 1,450.

With inflation at 8% over the past year, that would mean someone’s $ 1,450 a month payment from last year would now technically be worth more than $ 1,335. I haven’t written off the after-tax cost of mortgage debt here, but you have an idea.

The combination of rising house prices and low mortgage rates has made housing arguably the best hedge against inflation for the vast majority of Americans over the past two years.

Keeping debt at a fixed rate also means not being subject to inflationary pressures on rents.

Unfortunately, if you don’t own a home, you’re taking it on the chin. According to Apartment List, year-over-year rental growth was nearly 18% in the latest reading.

The ability to replace. Last week I found myself in one of the happiest places on earth on a Friday afternoon: the liquor store.2 I like doing my channel checks on trips like this, so I asked the owner how inflation is affecting his business.

He told me he’s seeing higher prices across the board, but the thing that surprised him the most was a new gas surcharge on ice delivery. He said they charged him $ 60 for a $ 30 ice delivery.

I imagine we will see many more in the weeks and months to come. Uber just announced it will add a $ 0.45 to $ 0.55 fare per trip, while Uber Eats deliveries will include a $ 0.35 to $ 0.45 surcharge.

I know we’ve all gotten used to paying for convenience, but with higher prices some people will have to make different choices about how to allocate their budgets.

Maybe that extra $ 20 for DoorDash isn’t worth it anymore. Maybe go pick up the pizza instead of paying for the delivery. Maybe sacrifice 1-2 nights spent eating out to make up for the higher bills.

For people on a tight budget, there will probably be trade-offs.

Avoid lifestyle creep. Inflation tends to hit families at the bottom of the income ladder the most because they don’t have as much room in their budgets as the prices of basic necessities rise.

But the group that is easiest to take advantage of with higher prices is the one with higher incomes.

Last month I wrote about Chanel raising the price of its bags from $ 5,200 in 2019 to $ 8,200 today. These bags are flagging items so wealthy people are willing to pay.

Avoiding the siren song of luxury goods is an easy way to keep your personal inflation rate from getting out of control.

The ability to negotiate higher wages. This option isn’t discussed enough in personal finance circles, but this is probably the best environment for workers to ask for a pay raise.

There are plenty of job opportunities, there is a shortage of workers and we are still in a world with demand suppressed by the pandemic. If you offer real value to your employer, now is the time to ask for more money.

And if they don’t appreciate your work, there are plenty of options elsewhere these days. A recent Pew Research study surveyed people who quit their jobs in 2021. Most were looking for more pay or flexibility. ‘power):

At least half of these workers say that, compared to their last job, they now earn more (56%), have more opportunities for advancement (53%), have more difficulty in reconciling work and family responsibilities (53%) and have greater flexibility in the choice of working hours (50%).

Saving money is always useful, but when prices rise it becomes much more difficult for many families to save money.

Making more money is one of those things no one teaches you how to do, but it’s probably the best way to improve your standard of living in the long run.

I know putting inflation hedges on your wallet is the sexiest option, but you have more control over your personal finances than the markets when it comes to fighting inflation.

Further reading:
Because housing is a good hedge against inflation

1That’s when that extra freezer in the garage comes in handy.

2So much excitement in the air for weekend plans.

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