Inflation has certainly been a dominant headline. The Consumer Price Index (CPI) serves as a key gauge of inflation and measures the change in the prices of a range of goods and services over time. Inflation decreases your purchasing power, which means you pay more money for the same things.
There are ways to help manage the impact on your purchasing power.
Consider the following steps:
Review spending habits. Reviewing your budget, or creating one if needed, and cutting back on certain discretionary expenses can free up more money to help pay for essential expenses where prices may be rising for utilities, food, healthcare, clothing, or transportation.
Follow a plan. Don’t panic. Do you have a financial plan? The planning process takes inflation and other market and economic factors into account when modeling different strategies and scenarios. Planning can help ensure you have a flexible strategy in place that’s aligned with your income and spending goals. This process helps prepare for inflation and potential adjustments as market and economic conditions change over time.
Put excess cash to work. If you have cash on the sidelines that you don’t need for current expenses or to shore up emergency savings, consider investing it so it can work harder for you.
Check your asset allocation. An investment portfolio allocation that’s too conservative may not generate the income you need. For example, if your portfolio earned 4% over the course of a year when inflation was at 6% for the same period, your purchasing power lost ground and you can no longer afford the same basket of goods and services as the year prior. Consider if it makes sense alongside your objectives and risk profile to allocate a larger percentage of assets to growth-oriented investments, which can provide a hedge against inflation over the long term.
Call your financial advisor to learn more or to tailor a plan for your specific situation and discuss ways to help protect your income in retirement.