A Bean Counter's Way

Seven Things to Consider When Inflation is High

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What is Inflation and Why Is It Dangerous For Our Financial Health?

Inflation is when prices go up during a period of time. During times of high inflation or inflationary times, your money is not worth as much tomorrow as it is today. Money loses value by just sitting in the bank because everything becomes more expensive in a short period of time.

What to Do in Times of Inflation?

The best thing to do during inflationary times is to put the money to good use and purchase items today that you were putting off until tomorrow. Nonperishable consumable goods are a great way to hedge against inflation.

Here are 7 things I would consider doing:

  1. Start by looking at all your debt with variable interest rates. These include Adjustable Rate Mortgage (ARM), credit cards, Home Equity Line of Credit (HELOC), and other loans. If possible, move these loans to a fixed-rate loan. As inflation increases, variable interest rates will increase as well. Increases due to interest rate variations can affect your monthly budget unexpectedly. If you have the money, pay off as much of the debt as possible. Paying the debt off today will save you a lot more money in the future.
  1. Fixed interest rate loans. For loans that are fixed rates, consider paying just the amount due every month. Apply any extra money towards the principal of variable loans. Fixed interest rate loans become cheaper in inflationary times. If you have a fixed mortgage, consider just
  1. Purchase big items today instead of waiting on them. If you are on the fence regarding a dishwasher or refrigerator, buy it if you have the money (not on a credit card). Buying it with cash will save you money in the long run because as inflation would have it, the same refrigerator will cost more in a few months. Since last year (2020), the price of used cars has gone up tremendously. In these types of situations, putting off the purchase will only end up costing more.
  1. Purchase nonperishable consumable goods. If you have room and cash, purchase dry foods, canned goods, paper products, and anything else that your family consumes throughout the year. As many have noticed, food prices have gone up a lot over the last year. Having a stock of products that you use at home is a great way to hedge against inflation.
  1. Plant your own food. If you have the room, consider planting your own food. Vegetables like potatoes, carrots, onions, and garlic are very easy to plant and harvest even in small yards and patios. If you have a large area, a small chicken coop is not a bad addition to have some fresh eggs.
  1. Inflation doesn’t just affect people’s foods and consumption. If you have pets, consider stocking up on items you need for them. Prices will rise across the board and will cause everything to go up in cost. Make sure you also factor in your pets when budgeting.
  1. Safety should be a concern during times of high inflation. As prices go up and supplies diminish, robberies and burglaries tend to go up. Ensure that your family is safe.

What is hyperinflation?

Hyperinflation is fast uncontrolled high inflation over a short period of time.

Inflationary Times I have lived in.

I lived in South America in the 80’s and early 90’s. Growing up in Brazil, inflation was a major problem for the country and the value of money depreciated very quickly. At the end of the month, the stores were packed with people trying to stock up on items before their money lost value. Brazilians got so accustomed to spending their money like this that the country’s savings rates were extremely low. During the time I live in Brazil, the currency went from Cruzeiros to Cruzados in 1986 (and lost 3 zeros), from Cruzados to Cruzados Novo (and lost 3 zeros) in 1989, to Cruzeiros again (and lost another 3 zeros) in 1990, to Cruzeiros Real (and lost 3 zeros) in 1993, and to the current Real in 1994 (and became 2.75 Cruzeiros Real). In a span of 10 years, Brazilian money lost 12 zeros. This means that what cost 1 Cruzeiro in 1984 was costing about 12,000,000,000,000 Cruzeiro (if it was still in circulation) in 1993.

To put it in (dollar) perspective, it means that a gallon of gas that cost $1 in 1984, would have cost $2,750,000,000,000 in 1993. That’s over TWO QUADRILLION dollars. Now, that’s hyperinflation.

Who Does Inflation Hurt?

In October 2021, the USA confirmed that Social Security checks will increase 5.9% in 2022. Inflation hurts those who have fixed incomes. Retired individuals and people on Social Security without savings are often the ones who hurt the most through an inflationary period. This happens because adjustments for these types of incomes are adjusted on a yearly basis and are adjusted after inflation has already happened.  The government calculates inflation that happens that year and adjustments are made the following year for these Social Security recipients.

Where do we go from here?

Although I do not believe our inflation will be as bad as what Brazil went through in the 80’s and 90’s, I believe that we are going to see uncomfortable price increases that we have not seen in the United States in many years. My prediction is that we will continue to see double-digit inflation for at least in the next year. Today’s dollar is worth more than tomorrow’s.  Everyone’s situation is different and the way we need to prepare is different. So, research what’s best for you and your family and be prepared for the rocky road ahead.


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