How To Manage Inflation In Your Financial Plan

What is Inflation?

Rising inflation causes a decrease in buying power over time. It generally costs more to purchase the same goods and services.

Inflation at various points in time:

1.06%                    Year Ending 1962

10.77%                  Year Ending 1982

2.26%                    Year Ending 2002

7.7%                      May 2022

How to manage Inflation in your Financial Plan

Managing Debt: Mortgage, Credit Cards, Lines of Credit

Consider paying down debt or consolidating debt at lower overall rates, particularly when interest rates float or are not locked-in and/or lock in lower rates when interest rates and inflation show signs of increasing.

Managing Cash Flow: Entertainment Costs, Defer New Purchases

Review where you spend your money. Can you reduce discretionary spending to ease pressure to pay for essentials like groceries, rent, heat and hydro? And what is really essential?

Managing Contingencies: Life Insurance, Disability Insurance, Critical Illness Insurance

Review where you spend your money. Can you reduce discretionary spending to ease pressure to pay for essentials like groceries, rent, heat and hydro? And what is really essential?

Investing vs. Saving:

Consider how long your horizon is and take on some risk to preserve and increase the value of your investments, even in retirement which will likely last decades. Optimize use of registered plans that allow for tax sheltered growth and perhaps tax-deductible contributions. Both approaches may help deal with inflation over time. Consider segregated funds with their various policy guarantees to help provide you with a safety net.

Diversify:

A properly diversified portfolio is key to managing inflation risk and providing the opportunity to achieve targeted rates of return over time that meet your goals in the future. Inflation can impact various investable assets differently and to different degrees. Ensure your investments align with your risk profile, time horizon and your various objectives.

Dollar Cost Averaging:

This tactic involves investing the same amount of money at regular intervals (e.g. Monthly) regardless of how the market is doing. It reduces risk over time and offers the opportunity to buy in when prices drop, buying more of the same investment and taking emotion and market timing out of the process.

Adjust. Adapt. Amend.

Just like inflation may affect various investments differently, it can have different impacts on various aspects of your lifestyle and choices. Build in and value flexibility. Consider adjusting travel plans or exploring experiences that cost little and provide enjoyment. Consider retiring later, working longer or part-time. Each year of delay means spending your earnings instead of your savings.

A properly structured financial plan can help provide direction, options, peace of mind, and predictability. It can help you understand the impact of inflation over time on your ability to reach your goals and do what you want to do. Be sure to periodically stress test your plans, solutions and strategies to make sure they continue to do the job they were designed to do.

If you would like to discuss inflation or any other topic, feel free to reach out to me for a FREE 15-MINUTE CALL

I look forward to hearing from you.

With Gratitude,

KB.

THIS ARTICLE IS PROVIDED AS A GENERAL SOURCE OF INFORMATION ONLY AND SHOULD NOT BE CONSIDERED TO BE PERSONAL INVESTMENT OR LEGAL ADVICE. READERS SHOULD CONSULT WITH THEIR FINANCIAL OR LEGAL ADVISOR TO ENSURE IT IS SUITABLE FOR THEIR CIRCUMSTANCES.