4 Ways to Hedge Against Inflation
COVID-19 is out here like, “hey, you can go places now.” Meanwhile gas prices are like, “the fuck you can.”
Inflation was already a central economic issue in 2021. Yet here we are in 2022 and overall inflation is at 7.5%+ (gas prices being closer to 40%). However, prior to 2021, inflation has been kind to us for the last decade.
What’s causing inflation? If you Google that, you’ll find a myriad of differing responses. If I were to take a stab at it, I’d say it’s a combination of our purchasing and employment patterns due to the pandemic, decisions made by the Fed and President Biden, and corporate decisions making a challenge for supply to adjust to surging demand.
When will inflation normalize? If you Google, that you’ll also find yourself in a position of bewilderment. We don’t know. Will it be when typical spending patterns normalize? Will it be when COVID-19 has taken a chill pill? Will it be when more people return back to the workforce? I have no idea.
While inflation is truly harshing my mellow and choking me at the gas pump, it’s not causing as much damage as climate change. It’s still a cause for concern, but I have four helpful tips on how you can offset the impact inflation has on your wallet.
Tip #1
Negotiate your bills. While I realize negotiation is out of many people’s wheelhouse, it’s a skill worth embracing and taking action.
When I was chronically ill, checking the mail for medical bills was painful. I knew what I was in store for. But, I likely saved over $100,000 simply by making a quick phone call and negotiating my bills one at a time.
Don’t have medical bills? Negotiate your auto insurance, home insurance, disability insurance, fire insurance (in California). Negotiate your cable, internet, and phone bills. Many people also qualify for discounts on utility bills. You won’t know until you ask.
Make a window of 15 minutes in your day today to make 1-2 phone calls and negotiate a couple of monthly bills you have.
Show up with a little bit of leverage, and ask for what you want. The worst they can say is “no”, right?
Tip #2
Download your most recent bank statement and print it out. Highlight your monthly subscriptions and cancel the one’s you’re not using. If you’re using all of them, maybe consider which one is not providing you the most value and eliminate it.
Then go through and highlight any charges that don’t bring you joy. You want your double pump, cold foam, cinnamon dolce latte with oat milk because it brings you joy? Great, keep it in the budget. I don’t even know if that’s a real drink, I just hear orders like that at the coffee shop I go to and get confused.
Anyways, I’m not typically one for cutting a lot of expenses from your budget. I more so focus on the bigger wealth building variables like income. But, by visually seeing your bank statement, you’ll easily be able to identify excess spending which can make a difference during this time of inflation.
Speaking of income, this leads me to the next tip.
Tip #3
Ask for a raise. Easier said than done, yeah? Yeah. Not everyone can waltz into their bosses office and comfortably say, “hey, I want a raise.” Be mindful of how long you’ve been with the company, how much value you’re adding, etc. You’ll need to prove you’re an investment worth making.
You’ll need ammo. Have you been taking on additional responsibilities? Have you taken the lead on projects? Have you worked overtime when the company has needed you most?
Additionally, you would need to figure out how much of a raise to ask for. Yes, I’m sure you want at least 7.5% to keep up with overall inflation, but you would need to do some homework based on your position and geographic location for the minimum you can ask for.
Tip #4
The best tip for hedging against inflation is by investing your money.
While I’m an advocate for a healthy emergency fund, hoarding excess cash right now in a savings account will cost you. Right now, cash is trash. And at this rate, if you were to keep your money in cash and not invest it, within a decade you would lose approximately 50% of your cash’s value.
Let me reiterate — please do not invest your emergency fund. That money is meant to be liquid should an emergency arise.
So how can you add more money to your investments? If you currently have a 401(k) with your employer, you could opt to increase your contributions. Contributing 3% per paycheck? Make it 4%, or 5%.
If you don’t have a 401(k) or your current contribution will already put you at the $20,500 annual contribution limit, then you could add more money every month to your Individual Retirement Account (IRA). The limit for this account is $6,000 per year ($7,000 for those 50+).
I didn’t say hedging against inflation was going to be sexy, but it’s not the end of the world. Does it suck? Yeah, it sucks. Who wants to pay more for things? No one. The way I view it, inflation is like a silent tax. We all have to pay taxes even if we don’t want to, but there’s ways to make it less painful.
What’s my plan?
To stay the course and continue dollar cost averaging into low cost index funds. I already have a diversified portfolio (investing in US stocks, international stocks, and minimal bonds to insulate my portfolio), so I’m continuing to buy those same index funds.
Investing in low cost index funds (hundreds to thousands of stocks) is one of the best ways to hedge against inflation. If the cost of doing business goes up due to inflation, then revenue will also go up. If revenue goes up, then so does your money in the stock market. Of course there are other variables that play into the price of the stock market, but inflation is one of them. I realize you may have wanted a more sophisticated answer to hedging against inflation, but it really is this simple.
Am I buying the dip? No.
Am I timing the market? No.
Am I paying attention to panic inducing headlines? No.
Am I derailing from what I typically do? Also, no.
I’m doing what I’ve done for the last decade, and that’s simply buying into the stock market on a weekly cadence. I’ll leave you with this quote:
“The first rule of compounding: Never interrupt it unnecessarily.”
Cheers,
LP
