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What millennials should do about inflation, according to the experts

Pro tips on navigating an unusual time for the economy

Whether you’ve been following the headlines, checking your financial apps or simply paying attention to your recent purchases, you’re probably aware that inflation is the highest it’s been in 40 years. This means that prices are going up, on everything from groceries to gas — not to mention clothing, cars, computers and more.

If you’re like me — that is, if you’re a member of the Millennial generation — you’ve never really experienced a period of prolonged inflation. What should you do financially as prices continue to rise? We asked the experts, and received four money-saving tips when it comes to how to prepare for inflation as consumers.

In this article:

Adjust your budget

What’s the first thing you should do when the cost of consumer goods goes up? Adjust your budget.

“In the short term, Millennials should adjust their budget to allow for inflationary costs to use up more of their income,” explains Scott Nelson, founder of MoneyNerd. With a higher inflation driving up the cost of everyday purchases, it’s important to ensure that your budget reflects what you’re actually spending on groceries, gas and other essential items — as well as discretionary items such as restaurants and entertainment.

After you’ve done the math on which expenses have experienced rising prices, you can start asking yourself where you might need to cut back. That way, you’ll be able to keep your spending within your means as much as possible — and avoid taking on credit card debt you don’t need.

If you can put off certain types of discretionary expenses until, if and, when prices go down, you could save even more money. “By waiting until higher prices begin to trend downwards, you could find yourself with more purchasing power for the same item in another year or two,” says Tanya Taylor, CPA and founder of Grow Your Wealth.

On the other hand, you should also ask yourself whether it’s worth buying certain everyday items as quickly as possible — especially if you’re purchasing items with an expected price increase in cost as inflation continues to rise. “Buy high-quality, long-lasting products or buy in bulk,” Nelson advises. “When inflation is raising the cost of consumer goods week on week and month on month, it is best not to have to buy with each increase. Buy in bulk and buy quality and save yourself in the future.”

With inflation driving up the cost of everyday purchases, it’s important to ensure that your budget reflects what you’re actually spending.

Build an emergency fund

“The Covid-19 pandemic has shown how essential having an emergency fund is,” says Taylor. Building a solid emergency fund gives you a financial safety net that can cover any unexpected expenses and/ or protect you during a period of unemployment. If you haven’t yet started setting aside a sufficient money supply for an emergency, you might want to make it one of your top financial goals for 2022.

How much should you save — and where should you put the money? Many experts recommend putting between three and six months’ worth of expenses into a high-yield saving account. That way, you can maximize your interest rate potential without having to manage the risks that come with investing in the stock market.

“One of the drawbacks to emergency funds is the need for liquidity and ease of access, which is a double-edged sword in this low-interest-rate, high inflationary environment,” Taylor told us. “This means that your money is not earning anything. Explore opening a high yield savings account or a money market fund instead of a traditional savings account. Online banks tend to offer more competitive rates, so look into those options as well.”

What if you already have your emergency fund saved? During a period of inflation, you might want to consider adding to your savings. “With rising inflation, the amount that you will need may have increased,” Taylor explains. “If you already have an emergency fund, consider revisiting the amount to determine if it would be enough to meet your needs.”

Start investing

Once you’ve recalibrated your budget and boosted your savings, what should you do with any remaining disposable income?

Some financial experts would suggest putting that money into the stock market. Historically, stocks have been more likely to rise during periods of high inflation, which means that money you put into the stock market could increase, especially if you choose your investments wisely. It’s worth noting, however, that the market has been experiencing a downturn as this article is being edited, in part due to speculation about steps the Fed could take to reduce inflation — for example, higher interest rates, which makes borrowing money more expensive, and tends to reduce spending. This demonstrates that you should only invest if you’re comfortable with the risk that the value of your investments may decrease, even if the trend over time for the stock market is positive.

Depending on how the financial markets look, “look into investing your disposable income into stocks,” says Nelson. “While bank accounts are safe, they are continuing to offer a low interest rate and it’s certainly not covering the rising inflation.” (Again, though, while the market had been steadily rising when we spoke with Nelson, it has been in “correction” mode — that is, market value has been going down — over the past few weeks.)

Should you want to put your money in the market, you have a wide array of choices, says Taylor. “Depending on your savings goals and risk tolerance, there are many options available. Individuals who want to have more control over their investment decisions can invest in individual stocks. Those who want a more diversified mix of investments can choose index funds and exchange traded funds, which generally have lower fees than mutual funds.”

If you invest, you can also do so to reflect your values. If you are interested in social justice, for example, you can look into sustainable investing (often called socially responsible investing) or investing for racial justice. If you don’t want to pick your own stocks or mutual funds, you could use a roboadvisor to create and manage your investment portfolio. Many parents invest in 529 plans for their children, and plenty of people invest in IRAs, 401(k)s, HSAs and other tax-advantaged savings vehicles.

Consider real estate

There are other places to invest your money during an inflationary period— including real estate.

Now could be a great time to purchase a home, for example. “While interest rates have increased over the past few months, they still remain at historic lows,” says Taylor. “And the higher your credit, the more favorable the interest rates.”

Nelson agrees. “While buying a house during this high market may be intimidating, paying a mortgage with currently low-interest rates and owning a property that might increase in value is a great way to absorb the hit of inflation on consumer goods.”

In some cities, renting an apartment may still be more cost-effective than buying a home. However, there are plenty of advantages to home buying — including the ability to renovate your home and add value, rent your property on Airbnb, and/or become a landlord.

If you’re concerned about what certain inflation expectations might do to your finances, think of it this way — by decreasing the amount of money you spend on short-term discretionary items, you can increase the amount of money you put towards long-term financial goals like emergency funds, education, real estate and retirement. While any individual investment may fluctuate with the market, most investments tend to experience economic growth over time — and don’t forget that you can also invest in yourself and your skillsets, from resume-building job skills to money-building financial skills.

“On the whole, defeating high inflation is about riding with it, managing your finances, and planning ahead in the short, medium, and long term,” says Nelson. Start your own inflation protection by tackling short-term tasks like budget allocations, then work on medium and long-term tasks like saving and investing. It’s hard to say how long our current inflationary period will last — so Millennials should make as many smart financial moves as possible, and build the kind of financial stability that can yield value no matter what happens next.

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About Nicole Dieker

Nicole Dieker has been a full-time freelance writer since 2012, with a focus on personal finance and habit formation. In addition to Haven Life, her work regularly appears at Lifehacker, Bankrate, CreditCards.com, and Vox. Dieker spent five years as a writer and editor for The Billfold, a personal finance blog where people had honest conversations about money, and is the author of Frugal and the Beast: And Other Financial Fairy Tales.

Read more by Nicole Dieker

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Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

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Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

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