Welcome to the Topic “Best Ways to Fight Inflation ”

Inflation rate increased from 8.6 per cent in May to 9.1 per cent in June 2022, exceeding market expectations of 8.8 per cent and reaching its highest level since November 1981. Since 1991, the Federal Reserve has approved the highest interest rate increase, indicating a desire to bring inflation under control.

The rate of inflation in the United States is at a 40-year high. Investors and savers are undoubtedly concerned about what to do with their money in the face of increasing inflation.

These large inflationary increases, which further worsen economic instability and market volatility, cause the traditional stock market to become chaotic. Investors seek out fresh investment opportunities in an effort to protect themselves from the hazards brought on by price increases as a result.

According to Chris Berkel, the founder of AXIS Financial, “Inflation is the silent wealth killer”. Even if investors have been successful in producing strong returns year after year, the effects of inflation could still cause a decline in the purchasing power of their portfolios.

These times of high inflation and uncertain investment environment call for guarding the already held cash and making prudent decisions on putting your money to hedge against rising costs.

The top four practices that can provide you with the best ways to fight inflation are:

1 – Save, Save and Save – Review your Expenditures

Because lower-income people often have tighter budgets and find it more difficult to avoid price increases on essential necessities, higher rates of inflation for these households are more harmful.

While sitting down to make your monthly budget, consider where your money is going. Few tips that may help you reduce spending are:

• Planning. Be clever while using your automobile and make plans in advance to economize on gas. If you must conduct errands, make one trip and do so during a time when there is little to no traffic. Have a week's worth of meals before going grocery shopping.
• Track your expenses. You can learn for sure how much and where you are spending your money when you keep track of your expenses. Knowing how inflation will affect your home budget will be useful because not all areas will be impacted equally by it.
• Balance your Budget. You may manage your income and expenses by making a balanced budget to achieve your goals. If you already have a budget, you might need to make changes to it to reflect rising prices for things like food, transportation, or other essentials. You can choose how much to spend elsewhere after you've taken care of the necessary costs. It may be helpful to clarify your needs versus wants.
• Be Wise in using your Credit Card. According to CreditCards.com, typical credit card interest rates currently stand at a little over 16 per cent. Make sure to clear your outstanding dues to the max on a monthly basis, or better still, switch to Debit Cards.

2 – Put your Excess Money in a Savings Account

According to the general rule, if inflation is higher than the interest rate on your Savings Account, you are actually losing money since the inherent value of each currency unit is decreasing rather than increasing in real-world purchasing power terms.

Ask yourself what you want the savings account for; should I open a savings account, though, if I'm attempting to tighten my belt in the face of rising living expenses and want to make sure I have some money put away to weather the storm?

With the majority of savings account types, there are pros and downsides. Despite a recent 50 basis point (or 0.5 percentage point) increase in interest rates by the US Federal Reserve, rates are still quite low across the board (at least, for now).

Savings accounts are still a good idea to think about as a backup plan, though.

When making your decision, bear in mind that while some types of accounts, such as retirement or cash-to-investment products, can lock up assets for years, regular savings accounts can give you immediate access to your money in the event of an emergency.

3 – Consider Stocks for Excess Cash

Your extra money can be invested in Stock Mutual Funds or Company Stocks as opposed to being kept in your Bank Account. This has shown to be an excellent approach to fend off increasing prices and contribute to its adjustment.

Businesses might pass along the increased corporate costs to customers in the form of rising pricing when you invest your money in Company Stocks or Stock Mutual Funds. Their profit margins are thereby protected from inflation, leading to constant or even continuously rising stock values.

Energy and food are examples of consumer staples with significant pricing power. Because they can readily execute price increases without hurting demand, they can simply balance any extra costs. As a result, even during periods of high inflation, the stocks of consumer staples companies remain stable.

Investing in commodities equities is, therefore, typically a wise way to fight inflation.

4 – Make Tax-efficient Investments

As mentioned above, investments in equities and mutual funds can serve as an inflation hedge. Consider reducing overhead costs by focusing on tax-efficient investments to further economize. To do this, you can use a variety of tax-efficient investing strategies, such as:

• Placing assets in taxable accounts that lose a smaller proportion of their earnings to taxes
• Storing assets in tax-advantaged accounts to reduce their tax liability.

Investments that typically lose less of their returns to taxes are better suited for taxable accounts, whereas investments that typically lose more of their returns to taxes should be allocated to tax-advantaged accounts in order to maximize tax efficiency. Essentially, tax-efficient investing will reduce your tax burden, which means you pay less on what your assets produce, allowing you to keep more of your money.

IRA (Individual Retirement Account) are tax-advantaged accounts. An IRA that allows for tax-free growth and tax-free withdrawals in retirement is known as a Roth IRA. Open a Roth IRA if you are eligible and contribute the maximum amount because tax-free accounts can be quite beneficial.

According to Roth IRA regulations, you can withdraw your money whenever you like and won't be required to pay federal taxes if you've kept your account for five years (conditions apply) and are 59.5 years or older.

Adopting the best ways to fight inflation can minimize your worries under rapidly rising costs. Placing your expenditures on a tight leash coupled with a savings mindset and adhering to best saving practices would help you weather the storm.

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Also Read: Best Way to Beat Inflation