Simple Strategies to Keep Inflation Out of Your Wallet

By TradeSmith Editorial Staff

A new Quinnipiac University poll this week showed that 30% of Americans believe inflation is the most urgent issue in our country today. No other issue garnered even half as much concern.

It’s not hard to understand why.

Consumer prices have been soaring at the fastest pace in decades. And essentials like food, home-heating fuels, and gasoline have been leading the way higher.

For many folks, the basic cost of living has never been higher. And unfortunately, this situation appears likely to get worse before it gets better.

But that doesn’t mean we have to sit back and watch helplessly as inflation ravages our finances. There are several simple and practical things we can do as both investors and consumers to help protect ourselves from rising prices.

In last week’s Money Talks, I explained how you can protect your portfolio. I discussed several investments to avoid and others that tend to do extremely well during inflationary times.

This week, I want to share a few ways you can help minimize inflation’s impact on your wallet. Some of these ideas may seem insignificant or even silly, but they can make a real cumulative difference to your finances over time.

Let’s start with the biggest monthly expense for most Americans…

Minimizing Inflation in Housing Costs

If you own a home with an outstanding mortgage, there are several situations where refinancing could make great sense (and save you a ton of money).

The first is if you have an adjustable-rate mortgage. The reason should be obvious.

The cost of an adjustable-rate mortgage moves up or down along with long-term interest rates, and inflation generally causes long-term rates to rise. This means your monthly mortgage payment could move significantly higher over time.

Refinancing into a fixed-rate mortgage will eliminate this risk. And while mortgage rates are up significantly from their record lows last year, they’re relatively cheap on a historical basis.

The second situation is if you have an older fixed-rate mortgage with a relatively high interest rate.

Locking in a lower long-term rate will protect you from inflation and reduce the nominal cost of your home over time.

I would assume most folks with a higher fixed-rate mortgage probably already took advantage of this opportunity over the last few years. But it’s still not too late to do so now.

Finally, refinancing can also make great sense if you’re spending a large percentage of your monthly income on your mortgage.

For example, financial advisers typically recommend spending no more than 28% of your pretax income on your monthly mortgage payment.

If you’re spending significantly more than this, refinancing into a long-term, fixed-rate mortgage could reduce your monthly payment and free up income for rising expenses elsewhere.

Renters don’t necessarily have the same options, but I would encourage you to speak with your landlord. Some may be willing to extend your lease and lock in a fixed rental cost for longer.

And of course, if you have the means, buying a reasonably priced home with a fixed-rate mortgage could make sense for the same reasons I mentioned earlier.

Minimizing Inflation in Debt-Servicing Costs

Regular Money Talks readers know I’m not a big fan of debt, especially consumer debt. And higher inflation hasn’t changed that.

Even though inflation generally makes debt less expensive in real terms over time, I would still prioritize paying off most types of nonproductive debt today. (And I certainly wouldn’t recommend taking on more debt unless absolutely necessary.) There are a couple of reasons for this.

First, being relatively debt-free gives you a degree of financial freedom and flexibility you can’t really get anywhere else.

Second, a lot of consumer debt has a floating interest rate, which can quickly spiral higher with inflation.

That said, if you are paying off a significant amount of floating-rate debt, I would recommend consolidating or refinancing it with a lower fixed-rate loan, if possible. This could save you a lot of money in unnecessary interest.

Minimizing Inflation in Energy Costs

After housing and debt-servicing costs, the biggest expense for most folks today is probably energy. This includes energy to heat and power your home (gas, oil, electricity, etc.) and to power your car (gasoline, diesel, etc.).

I’m far from an expert on this topic. But I do think simple conservation can make a big difference here. This is the kind of advice many of us may have heard from our parents or grandparents or learned in home economics class.

For example, adjusting your thermostat a few degrees cooler (in the winter) or warmer (in the summer) can dramatically lower your home energy bill. You might also consider switching to a “smart” thermostat that can automatically optimize these settings for you.

Depending on your circumstances, upgrading to a more efficient heating and cooling system or improving your home’s insulation might make sense.

Obviously, the surest way to use less gasoline or diesel is to drive fewer miles. If you’re commuting to the office, you might ask your employer if you could work from home part-time.

Alternatively, you could also consider carpooling, if possible, to share in fuel costs.

And if you have the means, switching to a more fuel-efficient vehicle could make sense.

Minimizing Inflation in Food Costs

Again, I’m not an expert here. But this is another area where simple, common-sense strategies can help.

For example, planning your shopping in advance can help you avoid unnecessary impulse buying.

If you have a pantry and freezer space, buying in bulk – and stocking up on staples when they go on sale – can save a significant amount of money with relatively little effort.

Finally, if you enjoy cooking, you might consider inviting friends or family to your home rather than going out to a restaurant. It’s an easy way to save money, and it’s often even more enjoyable than going out.

That’s it for this week. I hope these ideas were helpful, and I’d love to hear any additional ideas of your own. As always, you can reach me directly at [email protected]. I can’t respond to every email, but I read them all.