Pause These 3 Financial Priorities During High Inflation and Focus on These 4 Instead
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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When inflation is high, it means that the prices of average goods and services cost more than they did before. This can make it frustrating to figure out the right financial moves to make.
While the U.S. inflation rate has actually cooled to a refreshing, and nearly ideal, 2.3%, down from highs seen during the pandemic, prices have not dropped, and newly imposed tariffs by President Donald Trump’s administration threaten to drive inflation up again.
Rather than panicking, financial experts offered some financial priorities to pause during periods of inflation, and those to focus on.
Pause: Cash Savings
It might sound counterintuitive, but according to Jamie Ebersole, a CFP, founder and CEO at Ebersole Financial, you actually want to pause new contributions to your savings account and reduce your checking account balance to the lowest possible level (within reason) during high inflation.
That’s because “cash depreciates very quickly in times of high inflation. Wait until inflation rates have fallen below current interest rates to once again keep significant amounts of money in cash,” he said.
Pause: Extra Mortgage Payments
High inflationary periods are also not a good time to be dropping extra mortgage payments on a fixed rate mortgage, Ebersole said.
“As inflation creeps up, the real rate of interest that you pay will decrease, making the loan much more affordable over the longer term,” he said.
In essence, you will be paying back the loan in the future with depreciated dollars.
“The reverse is also true. When interest rates are very low, you should prepay your mortgage to reduce the effect of higher real future interest costs,” he said.
Pause: Big-Ticket Purchases
It’s important to pause your lower-priority items like large renovations and family trips, according to Shalini Dharna, a CPA and owner of Dharna CPA. Or these may need to be modified (think staycation or local tourist).
Focus On: Investing in the Stock Market
You may pause cash savings in periods of high inflation, but you should keep investing in the stock market in the same periods, Ebersole said.
“Stocks tend to perform well in such periods and they are the best chance you have to grow your assets to keep up with or surpass inflation levels over the intermediate and longer term.”
The exception here are bonds, which do not fare well with high inflation. However, I-Bonds or TIPS (Treasury Inflation Protected Securities) are a good investment in times where inflation is higher than expected, Ebersole said.
“Commodities such as gold and silver also tend to be good stores of value in periods where inflation is high.”
Focus On: Seeking a Financial Advisor
In times of uncertainty, such as high inflationary periods, it is wise to seek the counsel of a financial planner or advisor, Ebersole said.
“Everyone’s situation is different and there may be other opportunities to take advantage of higher inflation related to one’s financing choices and asset portfolio.”
Focus On: Top Expenses
During high-inflationary periods, navigating finances can become exceptionally difficult, Dharna said. Consumers should identify their “top expenses” and prioritize them. These include things like housing payments and groceries items. “Go through every expense and give it a rank,” she said.
Focus On: Paying Down Debt
While retirement savings are always important, Dharna warned, “not at the expense of having outstanding debt, as your debt is probably at a higher interest rate than your rate of return on investments.”
Sometimes finding the money to get out of debt is “as simple as cutting cable or another subscription” to provide enough cushion for your higher priority cash-flow items, she said.
“Slowly, one expense at a time, go through that list and figure out what is your non-negotiable and what may need to temporarily be paused as you navigate the current times.”
Most importantly, Dharna said, this exercise is hopefully temporary. “These economic ups and downs have and will come many times in our lifetime.”
It doesn’t mean you have to give up on any of your larger goals altogether, but it does mean some short-term changes to your financial output.
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