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How To Protect Your Personal Finances Against Inflation

Are you worried about the impact of inflation on your personal finances? From increasing costs of living to a decrease in purchasing power, it can be hard to get ahead and secure your financial future when facing an uncertain economic climate.

Inflation is a major factor in the devaluation of assets and can have a significant impact on American citizens. In particular, it affects homeowners by reducing the value of their property over time, as inflation causes prices to rise faster than wages.

This means that people's homes become worthless in terms of purchasing power, which has serious implications for those looking to sell or borrow against them.

Additionally, rising costs associated with home ownership such as utilities and taxes may not be able to keep up with inflation rates, leaving homeowners paying more out-of-pocket expenses even if they don't see any increase in their income. All together this makes inflation an important issue for Americans to consider when making long-term financial decisions.

According to recent studies, 1 in 3 Americans have skipped essential expenses due to rising prices. Additionally, 73% of Americans believe that inflation is making it more difficult for them to cover basic living costs.

But don’t worry, there are ways you can protect your money and make sure it keeps up with inflation. We will be taking a look at what inflation is, why it matters for our finances and how we can take steps to protect ourselves from its effects.

Keep reading for all the information you need to ensure that your money remains safe against the rising prices caused by inflation.

Invest Strategically

Investing strategically is an essential part of protecting your finances against the damaging effects of inflation. Whether you’re saving for a long-term goal such as retirement or for shorter-term objectives like a down payment on a house, it's important to choose investments that can perform well over time and produce returns substantially larger than inflation.

Inflation-proof/inflation-resistant assets are investments that do not significantly lose value during times of high inflation. These types of assets include commodities such as gold and silver, bonds that have a nominal rate higher than the current rate of inflation, and some stocks from sectors that are considered "defensive" industries.

In addition to certain commodities and financial instruments, tangible assets such as real estate can also be an invaluable hedge against inflation. While values may fluctuate with overall market trends, these types of assets typically maintain their purchasing power in the face of inflation and are considered suitable investments for long-term growth.

Investing in various asset classes is a must for long-term financial planning and protecting against unexpected scenarios. To make sure you have a diversified portfolio to meet your financial goals and guard against inflation, consider the following mix of asset classes:

  • Gold - As a historical store of value, investing in gold can act as a hedge against rising prices due to inflation.

  • Property - Using real estate as an investment strategy has proven time and time again to be profitable in the long term, even with changes in inflation rates. When shopping around for a mortgage, you'll often come across the terms VA, FHA, and Conventional Loans.

    These loans can provide you with a great way to finance the purchase of personal property, including residential real estate.

    VA loans offer great financing benefits and long-term savings for active service members or veterans and are not limited to just first-time home-buyers.

    FHA loans offer buyers the potential for lower rates compared to some other loan programs, even if you have a lower credit score or can't put down a large enough down payment.

    A conventional mortgage is one that isn't insured by the government and requires good credit and often at least 20% of the purchase price in down payment from the buyer.

    All of these loan programs can be used to purchase eligible real estate so it can be used as a home or to generate rental income as an investment.

  • ETFs - Exchange-traded funds provide an efficient way to gain broad exposure without high fees whilst benefiting from their low correlations with other asset classes.

  • TIPS - Treasury Inflation Protected Securities (TIPS) are designed to help protect investors from the effects of inflation; their interest rate rises when the Consumer Price Index does.

  • 60/40 Stock/Bond Portfolio - This allocation consists of 60% equity investments such as stocks and bonds, and 40% bonds holdings, providing regular income plus some potential growth yields whilst insulating risk levels too.

  • Short-term Bonds - They generally offer lower returns than long-term bonds but offset this by providing higher safety owing to their shorter maturity dates compared with longer-dated issues; they also help provide insulation from the effects of inflation on bond values more efficiently than longer maturities do.

  • REITs – Real Estate Investment Trusts benefit investors by bringing them a steady stream of dividends whilst having relatively low risks yet still giving some protection from higher inflation levels due to how real estate usually fares better over other investments during times of higher prices for goods and services.

  • S&P 500 – Investing in popular indices like the S&P 500 can make it much easier for individuals to screen investments based on size or sector rather than targeting individual stocks; what's more it helps ensure gains over any losses should inflation occur because performance coincides mostly between stocks of S&P 500 companies.

  • Leveraged loans – Loan mutual funds, asset backed securities (ABS),credit default swaps (CDS) are all wrapped up under leveraged loans these instruments provide attractive yields when there is spike in market volatility or under inflationary environment.

Decreasing purchasing power due to inflation

Diversify Investments Internationally

When it comes to investing your money, diversifying your investments shouldn't just be considered optional - it should be integral to any well-rounded financial portfolio.

The reasons for this are both varied and compelling; research shows that those who diversify their portfolios internationally achieve returns that are significantly higher than those investors who have an entirely national portfolio, with an average return of 3-4% more than other investors.

Geopolitical events, such as the coronavirus pandemic or instability in a particular country, do not all have the same impact on markets in different countries simultaneously; if you invest internationally, these isolated occurrences will have less impact on markets and therefore your investments.

It's recommended that you invest only in countries with strong economic foundations and stable currencies, invest regularly over time, spread out your investments across multiple industries and countries, and monitor market conditions so that you know when it's a good time to buy or sell.

To get started with international investing, it's best to seek professional investment advice and pay attention to fundamentals like macroeconomic stability, government policies toward foreign investment, regulation of markets and the nature of exchange rate fluctuations. All these factors combined can make a significant difference in your gains over time.

Be Wary of Cash Savings

At times of economic uncertainty, such as a global recession or major economic crisis, it can be tempting to turn to cash savings as a means of protection. After all, keeping cash at home or in an easily-accessible bank account can provide you with quick access to financial resources if needed.

However, this is not always the ideal plan during periods of inflation. Inflation essentially decreases the value of your money over time; that amount which gave you good buying power today may have less purchasing power tomorrow.

If you have your money tucked away in cash savings, you are essentially losing out on potential earnings from investing that money elsewhere and growing its overall value rather than allowing it to decrease with inflation.

Therefore, in periods of inflation, keeping your money invested for long-term growth is often the better choice.

For example, if you have $1,000 saved in cash during a period of 3% inflation per year, that same $1,000 would only be worth $939 at the end of the first year and just $879 by the end of the second due to its reduced purchasing power.

It could be much wiser to invest in assets that can maintain or grow their value such as gold or stocks rather than relying solely upon cash savings in times of economic hardship and inflation.

Expand Your Emergency Fund

Having an emergency fund is a vital aspect of financial stability and a great way to protect yourself during times of inflation.

Emergencies come in all forms, from job loss or medical bills to surprise car repairs, and it is essential to have sufficient funds available to pay for them no matter what the economic climate.

During non-inflationary periods, your emergency fund should ideally be large enough to cover three to six months' worth of necessary expenses but during periods of inflation, it may need to be larger.

To ensure you are prepared for any situation and can take advantage of the full benefits offered by an emergency fund, there are a few steps that can help expand this fund:

  • Automate your savings so that deposits occur each payday.

  • Sell Items and services to raise extra cash.

  • Find ways to reduce current expenses so that money can go to the emergency fund instead.

If you're interested in learning more about how to successfully build an emergency fund, read our additional tips from experts. In summary, having an emergency fund is important not only during inflation periods but also as a financial shield even when prices are steady.

Be Aware of Tax Liabilities

Tax liabilities can cause serious problems during periods of inflation, like a decrease in your purchasing power.

When inflation rises, the nominal value of assets may stay the same but their true worth goes down. This translates to increased taxes while real income stays stagnant or even decreases.

It’s especially difficult if you are retired and living on a fixed income-you may find that you’re paying more in taxes due to an increase in nominal value of those assets.

To prevent such an outcome, it is important to have effective long-term planning for tax liabilities. Doing so will allow you to take advantage of any current tax deductions available, and make sure that your liabilities are correctly adjusted to account for inflation and other changing economic factors.

Planning for long term tax liabilities can seem like a daunting task, but it doesn't have to be. The three best ways to prepare are:

  • Researching applicable taxes.
  • Setting aside money for them in advance.
  • Staying organized.

Researching what taxes you may need to pay down the line can help inform your budgeting decisions now, while saving small amounts throughout the year can ensure you have the resources available later down the road.

Lastly, becoming organized with records of payments and receipts is essential so that when tax time comes around you know exactly where everything is located. Taking proactive steps towards preparing for long term tax liabilities will help make it much easier in the future.

Additionally, setting up a tax shield as soon as possible can help protect you from potential losses so that you are insured during periods of inflation. Taking preemptive steps will ensure that your financial interests are safeguarded from unexpected complications from rising taxes during times of economic change.


Inflation can be a scary thing if you're not prepared for it, but there are steps you can take to make sure your personal finances are protected. Investing strategically, diversifying your investments internationally, and expanding your emergency fund are all great ways to guard against inflation.

Be aware of tax liabilities when making investment decisions, and always keep an eye on the cash value of your savings.

By following these tips, you can ensure that your money will go further and last longer no matter what happens with the economy. Are you taking steps to protect your personal finances against inflation?

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