Inflation causes your money to be worth less over time. To hedge against inflation, you need to invest your money in assets.
Inflation in the U.S. is at the highest rate in four decades.
Inflation decreases the purchasing power of your dollars over time. Here are steps you can take to protect the purchasing power of your dollars, according to Forbes.
- Trim your expenses. To minimize the impact of inflation, review your spending and identify areas to reduce or eliminate completely.
- Wait to pay off low-interest debt. Paying off debt is usually good, but you may want to hold off on making extra payments if you have low-interest debt. Your debt becomes less expensive due to inflation. Use the money for other purposes—like paying off higher-interest loans.
- Invest your money. Inflation causes your savings to be worth less over time. To hedge against inflation, you need to invest your money. If the prospect of investing is scary, consider a diversified portfolio of broad market index funds to lower your risk levels and costs.
Getting inflation under control
The Federal Reserve is tasked with keeping inflation at a healthy level by adjusting the nation’s money supply and interest rates.
When the economy is expanding too quickly and inflation rises, the Fed will typically raise interest rates or sell assets to reduce the amount of cash in circulation. These actions tend to reduce demand within the economy and can push the economy into recession.
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