How Can I Fight Against Inflation?

Dear Kristin,

What do you recommend we do to handle rising inflation?

Sincerely,

N

Dear N,

I’ve been asked about inflation a lot in this column—and I’m not surprised. With prices rising 8.5% since this last year, inflation is stuck near 40-year highs, forcing us to shell out more of our paycheck on basics like groceries and rent. But just because inflation is high doesn’t mean there is nothing we can do about it. I’ve written about this topic before on Making Cents, but there are other ways that you can fight back.

One of the most direct ways to fight against inflation is to increase your income—and that’s not always the easiest. If your wages rise in line with inflation, you won’t feel the impact of inflation as much because your income has increased; you’ll spend the same portion of your check on items like clothes and food, even if the total amount of what you spend has risen. The bonus of securing a pay raise is that once inflation starts to cool (which it already has), you’ll be able to add the extra money to your savings or investments. 

But as I mentioned, this isn’t the easiest way. It relies on your manager or your employer being willing to pay you more. This doesn’t mean you shouldn’t try. The labor market is tight right now, with employers still struggling to find workers. That means that there is a chance your employer would prefer to pay more money to keep you than to look for a new worker altogether. When negotiating for a pay raise, it’s always best to go into the conversation prepared. Make a list of your responsibilities, highlighting how they might have increased. Include your accomplishments that have exceeded expectations or demonstrated that you have gone beyond the scope of what’s required of you. Did you boost sales 30% even though the goal was 10%? Did you save the firm millions with a clever process improvement? Make note of this and bring it to your manager to justify the increase. 

A second way to fight inflation is entirely in your control.

If you can’t increase the amount of money you earn, reduce the amount of money you spend. I know austerity isn’t fun, but if inflation is pinching your wallet, you might want to reconsider spending money on things you don’t need at this moment, like a new dress or dining out with friends. And with some savvy shopping tips, you can likely spend less on items that you must buy, like groceries. Make a list, and stick to it. Avoid higher priced foods and go for cheaper alternatives, if possible. 

And don’t forget that your investments can be inflation-busting, too. It might be hard right now with markets down more than 10% since the beginning of the year, but if your investments have received an 8.5% return or better since last year, then you’re already fighting inflation. If they haven’t, or if you want to optimize your portfolio against inflation, consider what is colloquially called “TIPS” (Treasury inflation-protected securities) or “I Bonds” (Series I Savings Bonds). While they are both different investment vehicles, the premise behind them is the same: as inflation rises, the return on your investment goes up as well. 

Each of these investments have different rules—for example, you can only buy up to $10,000 in I Bonds each calendar year, and you have to hold them for at least five years to get the maximum benefit from them. But if you want to make sure your investments aren’t being dinged by inflation, these are two great places to start.

Above all, the most important thing you can do is to remember that there is a light at the end of the tunnel. Inflation is already starting to drop, and with the Federal Reserve committed to continue fighting inflation, there’s a good chance it will sink even further. And best of all, improving your financial situation in times of inflation stress will only make things better when inflation becomes a distant memory.

Good luck!

-Kristin

If you have questions about money, Kristin is here to help. Submit an anonymous question and she may answer it in a future column.