Inflation is hitting close to home.

Every year I look forward to placing an order of Girl Scout cookies with my neighborhood Girl Scout. For $25, I receive five boxes. But this year, my usual five-box order cost me $30. Sadly, even Girl Scout cookies are suffering the same supply chain and inflationary pressures as everything else. Inflation is hitting close to home. 

There are a number of factors that cause Inflation, such as when the demand for products and services outstrips the supply of such goods and services, a shortage of workers for jobs available, and increased government spending, (think stimulus checks). These imbalances cause prices to rise/inflate. According to Moody's Analytics, inflation is costing the average household $276.00 more a month. The last time inflation was this high; I was dancing to Holiday by Madonna. So, what's a smart woman to do about spending, saving, and investing as inflation rises?

Five tips for managing inflation:

Be Patient:  Been eyeing that new energy-efficient vehicle, vacation home, or new wardrobe? Wait. To avoid sticker shock, wait until the demand for such things settles down-it always does, especially when interest rates go up. This rise in interest rates will make it more expensive to borrow money, and so demand falls and prices usually follow. I have a friend who has been considering purchasing a vacation home and she has an interesting perspective. She understands that the current environment of low-interest rates has made it easier for many to buy second homes. However, she's waiting until the new owners see their first tax bill and realize they may have gotten in over their heads, in which case they may have to sell. Allowing her to scoop up a good deal! She’s patient.

Be Creative:  Gas prices getting you down? Consider taking the bus to go shopping, have your groceries delivered, or dust off your bike (electric anyone?) and get some exercise. Suppliers may also get creative. For instance, In the 1970s, when prices soared, food manufacturers introduced the concept of generic alternatives to brand names, to reduce prices. In fact, I remember my friend and me competing to see who had the most generic names in our mothers’ pantry. I won (I had a very frugal mother).

Be Bold: Employers are having a hard time finding employees. This makes you very valuable and is a great time to ask your boss for more money, either in the form of a raise or a one-time bonus.

Be Prepared:  Be prepared for higher interest rates. If you have a variable rate mortgage, change to a fixed rate. Try your best to avoid carrying a balance on your credit cards. As short-term interest rates rise, credit card companies will follow suit and raise your interest payment. 

Be Calm:  The Federal Reserve plans to raise interest rates to help slow down the demand for goods and services. This rise in interest rates can create volatility in the stock market and possibly put us into bear market territory. If you have money in the stock or bond markets, you have no doubt watched the value of your portfolio fluctuate.

Three tips for staying calm with your investments:

 1.     Make sure your portfolio is diversified. Ask yourself, is a large part of my money sitting in just one or two stocks, or one type of index fund or mutual fund? If so, consider adding some defensive positions; energy, consumer staples, healthcare, financials, and real estate are good sectors to have exposure to during inflationary periods. (Click here for a definition and example of each sector). 

2.     If the recent drop in your portfolio value has caused you much discomfort, consider adding to cash and short-term bonds, such as I-bonds. (article on I-bonds). These types of investments add an excellent buffer to the ups and downs of the market.

3.     Ignore the noise. The markets have been through this before and they historically have recovered. So instead, stay focused on your long-term financial goals and be sure to check in with your financial advisor at least once during the year to ensure you are on track for reaching them.