Personal Finance Inflation Hedges to Put Your Money in Today
Just when the global inflation rate was soaring high, a war between two countries broke out and it added fuel to the fire. It wouldn’t come across as a surprise for some people if the rate reaches up to 10% a few months down the line. If you are someone who loves to stay updated about the markets, you might have questions such as “Should I buy commodities?”, “What about the TIPS?”, “How should I protect myself from inflation?” and so on. The best time to prepare yourself for inflation is before it occurs and not when it is happening.
From 2009 to 2020, the U.S. stock market went over 13% each year, beyond the inflation rate. If you are an investor for quite some time, you have probably secured yourself from high inflation even before it happened. No matter how you are dealing with your investments, there are many other ways apart from building your portfolio that can secure you from inflation. An inflation hedge is a type of investment that protects the investor from the dwindling value of the currency, no matter what happens in the market. Here are some of the best personal finance inflation hedges and some pithy tips you can consider.
A Costco Membership
If you are thinking about whether the prices of Costco are rising just like any other grocery store so the answer is yes, they are. Buying them in greater quantity will save you from further increases in prices. This membership with come along with a small decline in the gas prices that can hardly pay for your yearly memberships. However, you will still be able to buy a Costco hot dog and soda for $1.5, similar to what the people in 1985 used to pay.
30-Year Fixed-Rate Mortgage
The purpose of your investment is to improve your living standards. If you dump all your money in the backyard of your house, it will gradually lose its value.
With the debt, your liability will lose its value which in reality is a good thing. Getting yourself a mortgage with a low rate of interest is considered to be the best way one can secure themselves from inflation.
The mean sale price of houses in the U.S. is approximately $350k. Suppose a 10% down payment, using the 30-year mortgage rate over the last 5 years of 3.7%, the monthly payment will be around $1450. With an 8% inflation rate, this $1450 would now be worth $1335, excluding the after-tax cost.
Increasing home prices and low mortgage rates have become the best strategy for inflation hedge in terms of housing.
Look for Substitutes
With the increasing prices across the world, businesses are now overcharging their customers. Uber added an extra $0.45 to $0.55 per trip whereas Uber Eats deliveries will now have an extra charge of $0.35 to $0.45. This will make some people think of making different choices to remain within their budgets. Some may even consider having trade-offs.
Avoid Lifestyle Traps
Rising inflation hits the low income a lot harder because they already have a tight budget to work with to pay for the increasing prices of necessary goods. The ones who become better off are the high-income earners.
Chanel recently increased the price of handbags from $5200 in 2019 to $8200. This indicates that the people are still willing to pay these prices. Avoiding a lavish lifestyle will prevent your inflation to get out of hand.
Ability to Bargain for Higher wages
Inflation calls for the workers to demand higher pay. With multiple job opportunities, a shortage of workers, and pent-up demand because of the pandemic, this is the time to ask for increased pay if you are willing to add value to your employer. You have many other options to choose from if they don’t appreciate your work. Maybe that job can turn out to be better for you and your growth.
Keeping aside some amount of money always comes in handy in the future. However, with the rising inflation rate, it becomes difficult for people to save money for later times. No one teaches you how to make more money but is the best way one can opt to improve their standard of living for it to last long. One has more control over their personal expenditure than the market when one has to stabilize themselves during rising inflation.
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