Planning for inflation

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COVID-19 has been a catalyst for countless sudden changes to everyday life. In addition to threats to physical health, financial wellness was a major pain point, as millions lost their jobs, took pay cuts or were forced to shutter their businesses for weeks on end. One issue that certainly has been expedited, if not catapulted by the pandemic, is inflation — a topic most have heard discussed on the news, but one that many might not pay much attention to under normal circumstances. Coupled with factors such as supply chain and manufacturing issues, inflation quickly is becoming something that affects us all, from consumers to business owners.

To temporarily slow inflation, the federal government adjusted interest rates and injected more money into the economy. Yet, to truly diminish the impact of inflation, businesses and consumers should consider making changes on their own.

The key to staying ahead of the curve is planning. Planning for inflation means more than just planning for increased consumer goods prices and tax rates. What makes the most significant positive change is taking steps to combat inflation through strategic wealth management, which can include altering retirement funds, extending leases and investing strategies.

For businesses, there are a few options to keep in mind to remain financially sound and retain/grow business. Staying ahead of interest rates is important. Businesses must monitor their cash flow and manage debt closely. Planning for these additional costs is paramount, as inflation typically causes an increase in the cost of goods, which can affect customer pricing and relationships. By keeping in mind additional expenses caused by inflation, business owners can anticipate customer responses and even address them directly to customers to mitigate negative reactions.

Equally crucial is looking at which contracts, leases, etc., may provide an opportunity to fix your costs over a longer timeline. These factors can help reduce stressors linked to inflation and keep your business thriving during unprecedented times, not just surviving.

Individuals should consider several ways inflation impacts their financial situation, especially when it comes to their retirement plans. The value of 401(k)s, IRAs, ROTH IRAs, HSAs, and other savings and retirement accounts values decreases as the value of purchasing power decreases. Adjusting the amount of earnings that go into these accounts every month could make an astronomical difference when tapping into those resources years from now when they are needed. If you haven’t started putting money away for retirement, now is the time to do so.

Another way to keep ahead of the curve is to invest, especially into inflation-hedged investments. These investments, including TIPS (Treasury Inflation Protected Securities) and I Bonds, plan for and protect you from inflation. Nonetheless, investing is key. Staying in the market and keeping your investments diversified remains the best strategy, regardless of inflation rates.

Ultimately, most individuals can minimize inflation’s effects through diligent planning and making even the smallest of changes. It’s important to take inflation into consideration in all your plans — no different than tax impact and adjustments in ROI or interest rates. Consider the value of the dollar in future years and evaluate options that will account for your financial present and future in meeting your goals and objectives.

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