Inflation is on the rise and shows no signs of slowing down. This means that cash is becoming less valuable to hold. So, what should you do with your cash to combat inflation?
Pay off your high-interest debt
Inflation and debt go hand in hand. If you have high-interest debt, start paying it off as soon as possible to reduce the amount of interest you’re paying. As inflation continues to surge, the more money you can save on your interest payments, the better.
Create a budget and follow it as closely as possible
Creating a budget and following it as closely as possible is one of the best ways to ensure that you’re staying on top of inflationary trends and maintaining your normal level of spending. By creating a budget and sticking to it, you’ll be able to anticipate your needs better and save money in the long run.
If you’ve never used a budget before or are unfamiliar with the basics, this is a great time to start. A budget will help you track your spending and help you make informed decisions about where to cut back.
Some basic tips for creating a budget:
- Establish realistic expectations. Don’t try to save on every purchase, but aim to pinch pennies wherever possible.
- Be honest with yourself. If you’re spending more than you’re earning, it’s time to adjust your budget.
- Take into account your unique circumstances. If you have a child in college, for example, your expenses may be higher than those of a single person, so ensure your budget matches your financial situation.
- Track your progress. Creating a budget is one step, but it’s not the only one you need to take to save money. Try also to track your spending as you go to see where you can make adjustments.
- Be flexible. Your budget should reflect your long-term financial goals, but it’s ok to make small changes from time to time – especially if those changes will lead to bigger savings down the road.
Use your cash to purchase assets that will generate passive income
As inflation continues to surge, consider using your cash to purchase assets that generate income. Some possible options include stocks, bonds, or real estate.
What are stocks? Stocks are shares in a publicly-traded company. Every stock is a fraction of ownership in the company and entitles the stockholder to a percentage of any profits the company makes. However, stocks are never guaranteed to increase in value, and any investment made isn’t FDIC-insured, meaning that you may lose your entire investment if the company goes under.
What are bonds? Bonds are debt instruments that offer investors interest payments and the safety of a predetermined return. The interest payments are usually fixed, so the amount you earn from a bond depends on the interest rate and the terms of the bond. Bonds are FDIC-insured, so in the event of bankruptcy, you’re guaranteed to receive your principal back.
What is real estate? Real estate is any property used for residential, commercial, or industrial purposes. Real estate is a long-term investment, so it’s essential to consider the long-term prospects of the market and the property before investing. However, real estate can provide a significant source of wealth over time, so it’s a good option for those looking to invest for the long haul.
Exchange your money for options like gold or silver
If you want to protect your cash from inflation spikes, consider exchanging your money for gold or silver, which are both commodities that are immune to inflation. Additionally, commodities like gold and silver tend to be less volatile than stocks or bonds, so they offer a more stable investment option in the event of a market downturn.
The bottom line
It’s important to take action now while cash is still valuable. Pay off your high-interest debt, invest in assets that will maintain their value or increase in value over time, and consider other options such as gold and silver.