Even though everything has just become more expensive due to inflation, you can still accumulate wealth for the future.
In the current economic context, many people consider merely surviving sufficient. Given the record-high inflation rates, more than half of Americans are living paycheck to paycheck, making it simple to put long-term objectives like wealth-building on the back burner.
We all know that the longer we put off accumulating wealth, the more difficult it will be to do so in the future. The good news is that we may still prepare for our financial future without making many significant changes to what we may already be doing, despite the high cost of living at the moment.
Here are four suggestions for increasing wealth in times of high inflation without making many changes.
Your emergency fund or savings should be in a high-yield account
The situation: Although you’re saving, you could be doing better.
Consider transferring any money you have set aside to a high-yield savings account. With banks boosting APYs, or annual percentage yields, you can at least make a little bit more money from something you’re currently doing, even though you won’t be earning an interest rate that exceeds the rate of inflation.
A high-yield savings account offers rates higher than the industry average, which is just 0.10 percent, according to the FDIC, when compared to a standard savings account.
Keep as little cash as possible
The situation: You have extra cash on hand that isn’t needed for your emergency fund, regular expenses, or necessities.
You don’t have to carry around extra cash just to have it. Your purchasing power decreases as a result of inflation, which reduces the value of the money you are hanging onto. If you have extra money on hand, think about investing it in something that will bring in more money. Long-term inflation control and value protection can both be achieved by investing in the market to expand.
As you continue to invest, take care to invest heavily in a retirement plan
The situation: You already give the market a percentage of your paycheck.
Over half (58%) of Americans are allegedly involved in the stock market, whether it be through a single stock, a mutual fund, or a 401(k) retirement account, according to a 2022 Gallup survey.
If this is you, it would be wise to keep acting in this manner. Investing is typically recommended to help combat inflation despite how the market may be performing right now because long-term gains typically outperform it. The S&P 500 has historically delivered an average annualized return of around 10%, but previous performance is no guarantee of future outcomes.
“The magic of compound interest and consistent savings habits are key to building wealth over time through all types of market conditions and economic environments,” informed by Sara Kalsman, a certified financial planner at Betterment, a robo-advisor for investing.
As long as accounts like a standard IRA or Roth IRA offer tax benefits that ultimately lower your tax burden and ensure you’re paying less on your investment gains, continuing to invest in a retirement plan is especially crucial.
A Roth IRA is a fantastic place to start if you don’t already have a retirement account set up because it can lessen the impact of inflation on your withdrawals. By making after-tax contributions to Roth IRAs, you’ll pay taxes up front, and when you withdraw money in retirement, it won’t be taxed (in the event that your account has been active for at least five years). At any reputable firm, you can start a Roth IRA.
Maintain your participation in any employer-sponsored retirement plan, such as a 401(k), if you currently do so. If an employer match is available, this will allow you to increase the amount of money you have in the market.
It is crucial to think twice before taking on any additional debt
The situation: You’ve already considered borrowing money, but you haven’t done it yet.
Be cautious while borrowing right now due to the rising interest rates on debt, which includes credit cards, mortgages, and vehicle loans. It might be preferable to wait it out if you can because financing is soon getting incredibly pricey.
“The more control you have over your spending during periods of high inflation, the less impacted you’ll feel by the rising cost of goods and services,” Kalsman says.
If obtaining a mortgage or other sort of loan is necessary for you, make sure to prepare your credit report and locate the best lender to obtain the lowest interest rate. For instance, SoFi provides a 0.25 percent rate discount when you commit to a 30-year rate for a conventional loan, while another promotion pays consumers up to $9,500 in cash back when they buy a home through the SoFi Real Estate Center, which is run by HomeStory. Members of SoFi can also receive a $500 discount on their home loans.
Even though it seems like everything around us is going up in price, keep in mind that despite this times of high inflation, some of the financial habits we may already be practising are helping us to grow wealth.