Feeling nervous about your savings? You’re not alone. The last few years have been tumultuous for everyone. Add financial worries to the mix and it's easy to feel a little overwhelmed as you try to make the best money decisions for your future. In fact, the
- 78% wish they had more breathing room in their finances.
- 63% say inflation is putting them off track financially.
- 60% note that inflation is getting in the way of saving more.
And while you can't stop inflation, you can build a financial strategy that anticipates it and helps offset the effects over time. Here’s how.
What is inflation?
Prices typically rise over time.
When prices rise, people must spend more for the same goods and services than before. You may remember when $10 could get you a movie ticket and popcorn. Now, that same $10 likely only covers the cost of your ticket. You could get more for your money at that time than you could now. That's inflation in action.
The Federal Reserve generally expects inflation to
How does inflation affect savings?
Just like in the movie ticket example above, inflation affects your savings through your spending power. The money you set aside for goals like retirement and major purchases may not be enough to cover those things anymore since your money today won’t go as far down the road. And when
How can you offset inflation’s effects on your savings?
Though inflation is likely to put anyone’s savings in a bit of a crunch, there are certain steps you can take to help combat its impact as much as possible.
Set a budget & stick to it
Let's face it; sometimes, not spending feels hard or downright impossible. Having a clear view of where you're spending your money can help you develop a savings plan that helps you hit both your short-term and long-term goals. The first step is to look at
Once you’ve tracked where your money is going, look and see what you can cut and your non-negotiables. It’s easier to get rid of expenses that aren’t adding much value to your life. For instance, charitable giving may be a financial value you're not willing to cut, but going out to dinner one less night a week, shopping smarter and cutting back on some subscriptions may be easy decisions. Saving even $50 a week can quickly add up, giving you $200 a month to help cover rising costs and add to your savings and retirement funds.
Establish an emergency fund
Think about the term “rainy day fund.” For many, 2020 was that rainy day as people lost their jobs or worked reduced hours—forcing them to rely on their savings to help make ends meet.
As you think about your own
Revisit your retirement plans
Your general savings may be top of mind right now—but don’t forget your retirement savings, too. If you still have some time before retirement, you may reevaluate your plans to help ensure you account for inflationary impact over the long-term.
Does investing help beat inflation?
Careful investing can be another way to potentially help protect your savings from inflation’s effects. You’ll want to carefully weigh the
Don’t go it alone
Bottom line: The longer your time horizon for saving, the less inflation may impact your savings. Think about the long-term: While things may be bumpy now, there will be other times when the economy and market outperform expectations—and, in many cases, it evens out over time.
Although it's hard to know exactly how long periods of high inflation will last, building knowledge and having a plan in place can help you feel more comfortable about its impact on your family's finances and lifestyle. A