Ask Chuck: Worried about inflation?

Dear Chuck,

I’m getting concerned about rising prices and the possibility of high inflation. What can I do to keep up with these increased costs for gas, groceries, home improvement materials, etc? 

Worried About Inflation 

Dear Worried About Inflation, 

Inflation is on everyone’s mind right now because it is a threat to our well being, not only individually but also nationally. It will help if I start with a true story to set up my answer. 

Years ago, my wife and I lived in a region of Texas located in “tornado alley.” One afternoon, we were under a tornado watch. Suddenly, alarms sounded as the once clear skies turned to near darkness and winds began to howl, and a rush of fear came over us. Serious danger threatening our lives and property was fast approaching! 

This fear prompted very swift action without panic or wasting precious time. Ann hauled important papers, valuables, and photo albums to a more secure location. We followed safety protocol to protect our lives as best we could as we waited out the storm in the most secure part of our home. Thankfully, that tornado passed over without causing damage. The point is, we were prepared in advance of the storm. We had a plan.  

Plan for economic storms

When you have a plan, you avoid panic and the accompanying risk of making poor decisions. “The plans of the diligent lead to profit as surely as haste leads to poverty.” (Proverbs 21:5 NIV)

The key to any threat is to stay ahead of the problem.

Crisis management involves anticipation, planning, and implementation. Being proactive can diminish potential damage. Procrastination invites it. 

Anticipate 

• Do some scenario analysis, and determine the areas where you could be most vulnerable if inflation continues to rise. 
• Look at your fixed costs like housing, debt, and insurance. 
• Examine your variable spending on food, clothing, and entertainment. 
• Consider ways to improve your income. 

Plan 

• Track your spending.
• Create and keep a tight budget, and adjust on a regular basis.
• Practice gratitude.
• Live frugally.
• Give, save, and reduce debt.
• Stop unnecessary spending, and build your emergency fund.
• Stock up on sale items that you will use.
• Strengthen family ties.
• Build relationships with neighbors, co-workers, church, community, etc.
• Take care of your health.
• Spend time with the Lord. Pray, read, and treasure the Word. 

Implement

• Own a home? Refinance if you can lock into a lower rate, and stay in your home long enough to justify the cost. 
• Have credit card debt? Call the company, and request a lower rate. Transfer balances, or consolidate your debt, but take fees into account. Check with your credit union to see if they can help. Choose to live like you’re poor.
• Have investments? Retired? Know your risk tolerance. Make necessary adjustments, and study industries that prosper during inflationary times. Rebalance your portfolio to benefit.  
• Take a side job, or sell some possessions to increase income.
• Impose a two-week (or longer) spending freeze, and bank the savings. 
• Trust the Lord to provide. 

“Light dawns in the darkness for the upright; he is gracious, merciful, and righteous. It is well with the man who deals generously and lends; who conducts his affairs with justice.  For the righteous will never be moved; he will be remembered forever. He is not afraid of bad news; his heart is firm, trusting in the Lord.” (Psalm 112:4- 7 ESV)

Inflation may not last long 

Greg McBride, chief financial analyst at Bankrate.com, says, “Price rebounds coming out of a recession is normal.” We are certainly seeing that! Prices for gasoline, used cars and trucks, housing, raw materials, groceries, etc. have all increased. Stimulus spending coupled with supply chain issues is driving prices up and decreasing purchasing power. Inflation accelerated at its fastest pace in more than 12 years with consumer prices up 4.2%. See the Consumer Price Index (CPI) at the Bureau of Labor Statistics. 

The Federal Reserve says that the nation’s current state of inflation is transitory. That could mean two months or eighteen. Regardless, it is eating away at income, savings, and retirement plans. If high inflation is on the horizon, the Federal Reserve will have to increase interest rates. That could hurt those who carry a lot of debt.  

In my recent book, Seven Gray Swans: Trends that Threaten Our Financial Future, I consider other economic threats that we should keep in full view as we navigate a volatile economic environment. I think you will benefit from reading it.