Inflation 2023: How To Get Rich When Costs Keep Rising
Over the past couple of years, consumers have been feeling the pain of skyrocketing prices on everything from food to utilities to housing. With inflation at a 40-year high, Americans have had to find ways to live on less and sacrifice their savings.
Though inflation is starting to decelerate this year, it’s still well above normal. As of February, the consumer price index was up 0.4%, or 6% year over year. That’s left many people wondering how to afford everyday essentials, let alone achieve their dreams of reaching financial independence.
Whether you’re hoping to get rich someday — or simply reach your long-term financial goals — here’s how to do it in the face of inflation.
Invest Your Extra Cash
Scrimping and saving only gets you so far. You won’t get rich by switching from name brand to generic products, or giving up avocado toast at brunch. To grow your wealth over time, you must invest your money.
Of course, investing can feel scary when there’s so much economic uncertainty. “Nobody can predict how long recessions or bear markets last,” said Chad Willardson, founder and president of Pacific Capital, a wealth management and advisory firm. “However, the recovery rate in history is currently 100%, meaning the markets recover and stocks reach new all-time highs following recessions and bear markets.”
Take Advantage of Lower Stock Prices
Inflation may be red hot, but that hasn’t translated to the stock market. In fact, rampant inflation can cause the stock market to go down.
That’s because when inflation is a problem, the Federal Reserve steps in by raising its target interest rate, which makes borrowing money more expensive for people and businesses, discouraging them from spending and investing. In turn, that can decrease company profits and revenue, hurting stock prices.
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But as long as you aren’t planning to retire in the next few years, you can make a down market work to your advantage.
“Down markets offer long-term investors opportunities to invest during a discount sale,” Willardson said. “People need to invest like they shop – buy more and stock up when there are major discounts and bargains.”
Even though the stock market isn’t performing well now, we know that historically, it grows an average of about 10% annually. “Down markets allow investors to get idle cash to work with more potential upside for growth,” Willardson said.
Stay Calm and Stick to Your Plan
A mistake that investors often make is panicking when their investments lose value and selling them off for cash, or trying to bet big on speculative investments. “Your emotions often are the biggest obstacle to investing success,” Willsardson said, adding that people destroy wealth by getting caught up in the headlines and fear or greed of the moment.
The truth is that no matter how intelligent or knowledgeable you are, you will almost certainly fail at predicting the market. Multiple studies have shown that the vast majority of day traders and professional money money managers underperform compared to the overall market.
“More money is lost trying to time the market and predict recessions than investing during recessions,” Willardson said. “The best thing anyone can do is to create a well-thought-out strategy that they can stick to through the ups and downs.”
If you’re not sure what your strategy should be, it can help to consult a professional. But you don’t have to spend thousands of dollars a year on a financial advisor. Many now offer hourly or project-based pricing, so you can get expert advice when you need it without breaking the bank. And if you prefer an even more set-it-and-forget it approach, consider investing with a robo-advisor, which can create a custom portfolio and automatically adjust it as necessary for a small annual fee.
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