7 Tips to Manage Your Money During Inflationary Times

During inflation, we all need to be smart with where we put our money. These tips can help you be a smart consumer and investor to reduce the burden of inflation.

Inflationary times can be difficult for anyone to navigate, but for people with a tight budget or fixed income, it can be especially tough to effectively manage your money in the face of rising prices and reduced purchasing power. When inflation strikes, smart financial habits become all the more important. And if you have savings or end up with some extra cash, investing it wisely can help ensure it grows with – or above – the rate of inflation. Here are some tips to help you decide where to put your money during inflation.

(First, consider reading our primer on inflation, “Inflation 101: Meaning and Causes.”)

Depending on your household’s spending habits, the figures reported by the Consumer Price Index (CPI) may not be an accurate reflection of how inflation is affecting you. In other words, inflation doesn’t affect everyone the same way. Take stock of how prices are changing, particularly with regard to items you buy regularly or plan to buy. This can help you better decide what to put off or go without.

 
For example, say the CPI reports that the price of a new vehicle is up 11% over the last 12 months, but medical care is up only 3%. It might not be the best time to purchase a new car, but it also might not make sense to put off a medical procedure or a checkup. Think about the risk – financial and otherwise – of certain purchases and weigh that risk against the purchase’s inflation rate.

Some costs, like car repairs or a medical bill, can’t always be planned for, but many other purchases can be. Take advantage of any sales or seasonal deals when possible. For example, stocking up on winter clothing in the summer, spreading out holiday shopping, or jumping at a clearance sale can help ease the strain on your future cash flow and keep more liquid funds available for those unexpected bills.

When the Federal Reserve raises interest rates, borrowing money becomes more expensive. However, money you’ve already borrowed can be used to your advantage. Fixed-rate loan payments generally don’t change month by month. As cash loses its purchasing power, fixed-rate payments tend to be easier to make, relative to other costs. In other words, despite rising costs during inflation, it’s as important as ever to make loan payments.

If you’re leasing a vehicle, you might want to buy it when the lease ends. Purchase prices are often set at the beginning of a lease, so it may be significantly lower than the market price during inflationary times – even after factoring depreciation from use. Buying your car outright gives you two options: keeping a discounted “slightly used” vehicle or selling it for a profit. Either way, if the terms were set pre-inflation, it might be a win-win.

If you’re feeling the effects of inflation, it’s likely your boss and coworkers are, too. Typical cost-of-living adjustments and raises may fall below the inflation rate, so even though your paycheck is bigger, it might not go as far as it used to. Consider asking for a larger raise to compensate for the reduced purchasing power. If that’s not on the table, explore other cost-saving measures at work, like utilizing a hybrid workweek or carpooling to save on gas.

In some cases, it might even be worth looking for another job. According to a 2022 Pew Research analysis of U.S. Census and Bureau of Labor Statistics data, 60% of workers who found new employment saw a real wage increase over the last year, compared to 47% of workers who stayed with their current employer.¹

If you’re nearing retirement, consider staying a while longer, until inflation cools. Another consideration: If possible, hold off on taking your Social Security benefit until you’re 70. If you start to receive Social Security before you turn 70, you’ll receive a reduced benefit. In inflationary periods, every bit added to a fixed income helps.²

Some savings options won’t keep up with inflation. Cash, for example, earns no interest. And traditional savings and checking accounts tend to yield minimal interest. Other savings options, such as high-yield savings accounts (HYSAs) and certificates of deposit (CDs), are safe investments that usually provide a better return.

Still, they may not have yields that can keep up with inflation. Here are some potentially higher-yield places to invest money during inflationary times:

• Series I Savings Bonds. These are government savings bonds with interest rates compounded and adjusted semiannually and based on a combination of a fixed rate and the inflation rate. I Bonds can be cashed after one year, but if you hang onto them, they can accrue interest for up to 30 years. Note that you can only purchase $10,000 in I Bonds per calendar year. They are a relatively risk-free way to beat inflation.³
• TIPS. Treasury Inflation-Protected Securities (TIPS) are another inflation-indexed government bond. They pay interest twice a year, based on an inflation-adjusted or original principal, whichever is higher. TIPS are issued in five-year, 10-year, and 30-year terms, and can be held until or sold before maturity.⁴
• Real Estate. Property is often a good bet against inflation, as fixed-rate mortgage payments stay flat while rents and property values rise. If you don’t want the responsibility of managing a property, real estate investment trusts (REITs) are publicly traded companies and pay dividends to shareholders from rents on managed properties. Real estate crowdfunding has also gained popularity in recent years and follows a similar structure to REITs.
• Indexed Stocks. Index funds are bundled stocks based on a market index, like the S&P 500. They tend to rise over time, even when adjusted for inflation, although you can expect some periods of drops. Stocks are not without risk, though, so many investors choose to diversify their portfolio with bonds and commodity investments alongside their index funds. For more on investing, read “A Guide to Investing in Stocks.”