Few things unite people faster than inflation. They may not agree on the causes, but no matter who you are or what you do, high inflation rates typically signal concern.
The issue is certainly one that you should address today. It’s really where the financial planning process can shine, since it allows for you to see all of your spending, investments and goals in one place. With that visual, you can then figure out how to tackle the fact that your spending may have increased.
What you shouldn’t do in the wake of the heightened inflationary pressure is assume that none of your goals are attainable and conclude you’ll never retire. In fact, there are some important factors at play that can provide you with a little bit of relief, when looking at short or long-term inflation.
Plan around rising prices
Eggs have become a big issue, as they skyrocketed in price faster than a well-cooked souffle. In December, prices had increased to 60% above where they stood at the same time the year prior. But some of this pressure could be behind us. Wholesale prices fell by 52% in February. These prices can trickle down to consumers, giving hope for some relief.
Similar pressure has eased in other areas, including used cars and gas prices (although these fluctuate).
While the easing may or may not continue in the short-term, what you should address is whether or not you need to change your budget in order to afford your lifestyle. This is where a spending analysis can really help. By taking a look at what you spend, where it goes and where you can cut, you can find ways to reduce your spending without impacting your quality of life.
Even the simple task of threatening to end a subscription can result in a cut to a planned price hike from a streaming service or news subscription. But, more importantly, it can give you an awareness of what needs to be cut in order to still achieve your goals.
Yes, maybe the grocery spending has come up. What can you do to reduce the impact of that, and still achieve the goals you want to achieve?
Long-term remains steady
While the current inflation numbers receive the most attention – and rightly so – it’s important to remember that the long-term inflationary expectations have hardly changed. First, the Federal Reserve still expects to reduce inflation down to 2% growth, which is their target number. Second, long-term inflation expectations remains under 3%, according to surveys by the Federal Reserve Bank of Philadelphia.
This leaves savers in a very comfortable position, since it does not require taking on more risk to cover dramatically higher costs in the future.
Instead, you can continue planning around the 3% mark, and still have a great estimate for what spending will look like when you’re in retirement (based on current expectations).
This means, even if prices are rising faster than expected, we expect to see an end to this trend. Planning now can ensure the short-term doesn’t impact those long-term goals. And if you think the inflation rate will jeopardize your long-term goals, it’s time to return to the planning process to talk about what has changed and what needs tweaking to get you back on track.
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