With inflation at an all-time high, it’s harder than ever to make smart financial moves to secure your future. But that’s exactly what we’re going to discuss today—how to move yourself, your family, and your business forward despite rising prices.
According to the Bureau of Labor Statistics, from 2020 through the end of 2023, inflation has risen by 21.4%. That means something that cost $100 in 2020 now costs $121.40. This is especially alarming because while prices are increasing, incomes aren’t rising at the same pace, and the cost of borrowing money is climbing even higher.
Today, we want to talk about smart financial moves you can make to counteract the effects of inflation. We’ve identified five key strategies that can help.
The first step to offsetting inflation is to perform a spending audit. This is easier said than done, and it’s important to clarify that the goal isn’t necessarily to cut spending but to understand exactly where your money is going. By identifying spending patterns, you might find ways to make the same purchases in a more cost-effective or inflation-friendly way.
What is measured can be managed. Imagine knowing exactly how much you spend on Amazon or streaming services each month. If you could cut those expenses by even 5%, 10%, or 15%, that savings could have a big impact over time. But if you don’t track your spending, you won’t know where you can make adjustments.
The second way to manage inflation is by opting for a longer mortgage term. When inflation rises, the cost of goods and services increases, which puts pressure on your cash flow. Extending your mortgage term lowers your monthly payments, freeing up money for other expenses.
Think about this: before 2021, interest rates were historically low. If you locked in a 30-year mortgage at that time, your monthly payment would be much lower compared to today’s higher interest rates. Not only that, but housing prices were lower then, meaning you would have also built more equity in your home.
Even now, locking in a lower monthly payment for a longer period can provide financial stability. Plus, if you need extra cash, tapping into home equity may be an option to help you manage rising costs.
Another way to improve cash flow during inflation is to contribute to your retirement plan only up to your employer’s match. This strategy allows you to maintain liquidity while still taking advantage of free money from your employer’s contribution.
While retirement savings are important, traditional accounts like 401(k)s and IRAs come with restrictions. You don’t have full control over when or how you can access your money without penalties. Instead of locking away excess funds, keeping cash accessible can provide financial flexibility when you need it most.
Many people assume that paying cash is the best financial decision, especially during times of inflation. The logic is that buying now avoids future price increases. However, there’s a downside: when you use all your cash for a purchase, you eliminate your liquidity.
If an emergency arises or a great financial opportunity comes along, you may have to borrow money at a higher interest rate to cover the expense. That puts additional strain on your cash flow.
Now, if you know you struggle with debt management, this strategy may not be for you. If you’ve had credit card debt in the past and are trying to avoid it, paying cash could be a responsible choice. However, if you have the financial discipline to manage cash flow wisely, it’s better to keep cash reserves and use leverage instead.
By maintaining control over your cash and financing major purchases strategically, you can keep your net worth intact while preserving liquidity. When you have cash on hand, you have greater financial agility and are in a stronger position to handle unexpected expenses or investment opportunities.
The final strategy to combat inflation is to ensure that you are always in control of your cash flow.
This ties directly into the previous point about maintaining liquidity. When you have access to cash, you are in a better position to make financial decisions on your terms. You can negotiate better deals, take advantage of investment opportunities, and avoid the pitfalls of high-interest debt.
At Tier 1 Capital, we emphasize financial control. When you view your finances through the lens of maintaining control, decision-making becomes much easier. Before making any financial move, ask yourself:
- Will this put me in greater control of my money?
- Will this allow me to be more financially agile?
If the answer is no, consider an alternative approach that keeps you in control.
A lot of financial success comes down to perspective. It’s not always about rigid financial rules—it’s also an art, depending on your personal situation and circumstances.
If you’d like to learn more about how to apply these strategies to your specific financial situation, visit our website at tier1capital.com and schedule a free strategy session today.
Remember, It’s not how much money you make. It’s how much money you keep that really matters.
