Inflation is Rising — What Do I Do?

Disclosure: This is not financial advice. Do your own research before making any financial decisions.

Prices are rising at their fastest rate since the 1980’s and seem unlikely to slow down anytime soon. So with everything becoming increasingly expensive, what should we do with our cash?

I’m doing three simple things: Building an emergency fund, buying stocks, and living within my means. Let’s get into it.

1). Building an emergency fund

If I’ve learned anything in the last 27 years of life, it’s to always expect the unexpected. A good way to stay ahead of life’s curveballs is to build an emergency fund to cover 3-months of expenses. I don’t want to keep much in cash (because of how high inflation rates are) but it’s better to be safe than sorry. A little note: if the inflation rate exceeds the interest earned on your savings or checking account, you’re losing money. Although financial advisors recommend 3–6 months in an emergency fund, I’m staying on the low-end so my money can work for me.

2). Buying Stocks

Investing in the stock market is the best hedge to inflation. If prices are going up, companies will likely make more money. Sure, they’ll have to pay employees higher salaries but that’s being financed by the consumers. In rising inflation, I look for companies with good cash flow, have the ability to increase prices easily, and have high switching costs. One of my favorites is Microsoft. I imagine the company you work for uses Teams (or something that Microsoft sells). If Microsoft increases their prices, do you think your company will do anything? Yeah, didn’t think so.

If you don’t want to think too hard about what to buy, consider an index fund. One of my favorites is VOO, the Vanguard S&P500 index. This ensures that you’re diversified.

3). Living Within My Means

The hardest part about living within your means is knowing what your “means” are. I set two simple rules for myself: Avoid carrying a credit card balance and maintain a positive personal savings rate. Credit cards are a great way to build credit and earn points for spending. I use my credit card like a debit card to avoid paying interest. Maintaining a positive personal savings rate is the easiest way to make sure you’re building wealth. I hate category-based budgeting apps like Mint so I use Investii to save 25% of my after-tax income every month. These funds are automatically deposited into my Schwab brokerage and Marcus by Goldman savings account.

Conclusion

Inflation can be scary but it’s not the end of the world. Just create a game plan for how you want to manage your money and you’ll be fine.

Investii can help you automate everything mentioned in the blog post. To get early access to the mobile app, get on the waitlist at www.investii.com