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Rules To Follow In Times Of Inflation.

So if you have not noticed, the price of just about everything is going up…while our salaries are staying the same. Some say recession, some say depression, some say all is fine. But no matter what the reason, times are getting tougher. Hospital costs are up 8%, gasoline 33%, overall prices on everything 4%. But according to Money Magazine, there are three rules to follow in times of inflation that could ease the pain:

1. You can actually lose money by saving money. Yep, you read that right. With a 4% inflation rate, interest paying accounts like CD’s at 1.97% a year and money markets at 3% or so, could be costing you up to 2% of your money a year before taxes. Their advice? Keep bond and CD maturities short.

2. Stuff beats paper assets – on paper. When inflation is high, goods like gold, silver, oil, art, and wheat tend to have an edge over securities, especially bonds. People think they have intrinsic value over paper money, so their value tends to go up. But how realistic is that value?

3. Fixed-rate debt is your best friend. Why? You repay a fixed number of ever-cheaper dollars. Stick with regular mortgages or car loans, but avoid credit cards, ARM’s and HELOC’s, which can have their rate changed.

So other than the tips that Money has, what kind of things are you doing in these strange times?


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Comments (6)

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  1. I think that the best thing to do is to stay calm. Do not worry and panic about the situation but just be sensible and try to think of ways that you can save a little money or ways that you can earn a little more.

  2. Eric says:

    Rule #1 is Real Estate, baby! I know we are in a slump now, but any decent inflation will eventually creep into the housing market. Think about all the lumber – which will require people with increased wages using gas powered chain saws and four-wheel drives (all increasing in price). The cool thing is – you can live in your investment!

  3. Llama Money says:

    #1 kills me. You gotta save money for emergencies, but it costs you to save. Yikes. It’s a constant balance trying to figure out how much to save vs how much to invest. Too much risk is bad, but not enough costs you cash. Inflation is horrible.

  4. Dorian Wales says:

    It seems US citizens are less aware of the impacts of inflation. I’ve personally written a post on “How to protect your money from inflation”. The thumb rule is really to make a shift from paper money to assets. I’d recommended considering foreign currency investments and stock investments which should adjust to inflation (look for high asset value and be aware of large cash deposits).

  5. […] Two Dollars: Rules To Follow In Times Of Inflation. This kind of freaks me out. I’m supposed to keep debt and not save? Well, of course not […]

  6. […] My Two Dollars shares some rules to follow in times of inflation. […]

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