August 8, 2017
Inflation is tame today, but its effects sneak up on you after a long period of time (like grey hair and extra pounds). With the purchasing power of the dollar eroding gradually with time, we count on our work incomes to make up for this. But what happens when we retire from stable jobs sometime in the distant future?
What can we do to cushion ourselves from the impact of inflation in the long term?
In my mind, there are a couple of strategies we can implement to protect our finances accordingly:
1. Recognizing that inflation erodes purchasing power in the long run. You can make sure you are well invested for the long term so that the performance of your investments more than make up for any kind of inflationary effect that our money experiences throughout the years.
2. Being mindful of when inflation rates rise. You can monitor inflation rates, recognize upward inflationary pressures and capitalize on these changes as it happens.
Let's take a look at these plans in more detail.
2 Consider landlording.
If you invest in real estate today and become a landlord, you'll be happy to know that rents are subject to inflationary pressures as well. You have the capability to raise rates when the cost of living goes up everywhere.
3 Build or preserve your earning power.
If you are in a position to earn, the best way to battle pricing increases is to keep a job or some other income stream going. You then expect wages and earnings to go up along with everything else. Without earning power, you may want to consider other ways to protect yourself from inflation, such as amassing appreciating assets.
4 Own your own business.
Once you're a business owner you can always raise rates, fees, prices along with the costs of operating your business. This is yet another reason to escape corporate serfdom.
5 Keep a diversified investment portfolio.
Keep a core portfolio of stocks and bonds, and if you're a bit more adventurous, you can reserve a small amount of your portfolio to inflationary hedges such as precious metals, commodities and real estate.
6 Cut your spending even more.
This should be the simplest advice but may be the hardest to follow: think hard before you buy anything. Practice abstinence: when items are priced higher, you'll be spending more, so try every excuse you can to avoid making purchases. Or change your shopping habits so you buy at lower cost places.