The theme this week on the Retirement Quick Tips Podcast is: Inflation is sticking around…now what? 

Today, I’m talking about keeping the end goal in mind. When it comes to anything in life, and especially with your finances, acting with prudence is of utmost importance. 

Prudence is the ability to govern and discipline oneself by the use of reason. We don’t want to make emotional decisions, but rather keep a cool head and think through how to adjust your spending habits in light of the likelihood that higher prices are here to stay for a while. 

With that in mind, what’s the end goal when you’re trying to protect and preserve your financial health? It’s important to keep this at the forefront of your mind. Prices are higher, your dollar buys a lot less groceries, gas, clothes, stuff on Amazon that it bought 1-2 years ago. 

When prices are going up and you can’t buy as much for the same $100, your consumption must go down, otherwise you’ll start spending more than you can afford - you’re savings will deplete, you’ll start needing to make some tough decisions that you wouldn’t have otherwise had to make if you adjusted your spending earlier, or worse, you won’t have any breathing room in your finances which will force you to take on debt to maintain the same standard of living. 

Inflation will hopefully stop getting worse and it appears that that’s already happening, but that doesn’t mean prices will be dropping soon. Many people mistakenly believe that when inflation goes down, that prices will go back to what they were a couple years ago. But that’s just not going to happen. A normal inflation means that prices will go up by a reasonable 2-3% annually. Deflation would be a return to previous price levels, so you can expect to continue paying higher prices for food, travel, clothing, etc. for the foreseeable future. Gas is more unpredictable because the forces governing prices are much more complicated. 

So the goal, I think needs to be maintaining financial health and a healthy balance sheet. And you want to make adjustments now. That means enough cash for emergencies, continued healthy levels of cash in your savings account, and continuing to save at current levels for retirement. 

I already have employees in some of the 401k plans I manage who have had to cut back on their savings levels because they were spending too much already and as soon as inflation hit and they had to divert more of their income to higher food and gas prices, the only place they could cut back was on their retirement savings and dip into their savings to plug the gap. You want to avoid that. 

I’ll talk about specific ways to do that as the week goes on, but for now, the most important thing is to keep the end goal in mind with maintaining a healthy financial picture in a sustained inflationary environment. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.  

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance