Social Security recipients cheered 5.9% cost of living adjustment for 2022. As consumers, our experiences with inflation say to put the pom-poms down.    

I’m not here to guess how high, how long, or place blame. 

I can share some actions based on “Inflation rewards debtors and hurts creditors”, a timeless premise reiterated recently by famed Yale economist Robert Shiller. 

Consider the following:

Cash is Trash. Those shaking their fists at me, yes cash is needed for upcoming purchases, but not at 10% or more of total savings. Last 12 months, cash earned 0.1% while inflation rose 6.1%, meaning your purchasing power decreased by 6%. That’s not coming back.

If cash is needed, close the gap and hedge against Fed rate increases by laddering CDs across 6, 12, 18, and 24-month terms. As CDs mature, reinvest what isn’t needed 24 months out. 

Diversify Fixed Income and Increase Assets. With inflation outpacing Treasuries, that part of your portfolio loses buying power. Don’t abandon all your treasuries, but mix in assets that tend to keep up with inflation. 

Consider adding REITs (real estate investment trusts), TIPs (treasury inflation-protected securities), commodities, and equities growing their dividends consistently above inflation. 

Words of caution, high-yielding stocks tend to move downward like fixed-rate bonds during inflationary times and evolve beyond “oil and gold” for commodities to include metals in renewable energy and necessities within technology. 

Buy Instead of Rent or Lease. Bad news renters, your landlord will be hiking rates to keep pace with inflation, thus you’re unprotected. Homeowners, your mortgage is fixed and the inflation-adjusted value of your payments declines at the same rate as inflation rises. Also, the replacement value of your home tends to rise with costs of land, materials, and labor. 

Buy higher quality durable goods that last longer (i.e. clothes, appliances, machinery) delaying replacement at higher costs. Autos should be bought, financed (see mortgage example), and owned for extended periods. Changing cars every 3-4 years means you’re buying the same utility (transportation) at a higher price versus utility at a fixed cost of 8-10 years. 

Negotiate and Lock-In Expenses. Subscription services, cable, internet, phone plans, insurance premiums, gym memberships, credit card APRs are recurring costs that are often negotiable. Also, discounts if prepay, pay annually, or commit to extended periods. Most not advertised, so ask. 

Bigger items, you can find auto loans ~2%, HELOCs at Prime minus 0.5%, and 15-year mortgages ~2.5%. 

Determine if you can manage 15-year mortgage payments, even if currently 3.2% on a 30-year refinance. Consider $500K at 3.2% 30-year is $2,162 month with ~$278K total interest versus 2.5% 15-year is $3,333 month with ~$100K total interest. 

You can’t control how inflation rises and falls, but you can control financial decisions today that will help manage inflation tomorrow. To learn more, talk with your Certified Financial Planner.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Glenn Brown is a Holliston resident and owner of PlanDynamic, LLC, www.PlanDynamic.com. Glenn is a fee-only Certified Financial Planner™ helping motivated people take control of their planning and investing, so they can balance kids, aging parents and financial independence