How Does Inflation Affect Your Wallet?

Inflation. A word we hear almost daily, but what does it mean, how does it impact me, and what can I do about it?

What is inflation?

Inflation is a term that is used in economics that Oxford defines as “a general increase in prices and fall in the purchasing value of money.” The word itself imagines a balloon, or perhaps something increasing in size.

It makes sense as inflation is (sometimes) caused by an increase in demand for goods, wages, or a decrease in the supply of goods.

However, in this case, it has occurred primarily because, over the last two years, the US Federal Reserve has printed 80% of all US dollars in existence. 

 Thus, I prefer to think of it as watering down something, in this case, the money supply. I like bourbon on the rocks, sometimes with a splash of water. Adding too much water makes it difficult to get all the flavor and nuance. If I keep adding water, it won’t really be bourbon at all. 

How does a rise in inflation affect me?

Inflation doesn’t affect everyone equally and can cause different problems for different people. For example, inflation may cause people on fixed incomes to have more difficulty affording necessities such as food and shelter because their income does not rise with inflation.

You don’t have to be on a fixed income to feel the pinch. Inflation is sitting above 8% currently, so if you didn’t get a cost of living adjustment of 8% or greater, you feel it.

A rise in inflation is usually associated with an increase in costs.

This will lead to higher prices for goods and services, affecting us because we need to spend more money on these things.

How might I be able to prepare for higher rates of inflation?

Unfortunately, there isn’t much good news. This is a time to decrease unnecessary spending wherever possible. Investments in stocks, real estate, and other asset classes act as a barrier or hedge against inflation. Think of it as a long-term emergency fund to protect or increase your purchasing power over time.

Changing Jobs? 

A job change is one of the quickest ways to stave off inflation. When the markets are down, it doesn’t lead people to rely on them for a haven of safety, but getting a tangible increase in pay through a job change can be what the doctor ordered.

Perhaps a job change isn’t in the cards. You can, however, make some additional income through a side hustle. There has never been an easier time to make extra income outside your job. The gig economy can be a tool to help make up the difference from inflation.

Know we are here to help.

Invest confidently,

— Nic & Jeff

We are a full-service financial advisory company that allows you to make a one-page plan for your money and prepare for your future. Learn more about what we do and how we can help you here


The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

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