Don’t Let Your Heartstrings Control Your Purse Strings
By
Jeff Motske, CFP®
December 7, 2018
Share on:
Giving to charitable causes can be a very emotional thing. You’re supporting something near to your heart, possibly with a deep personal connection. However, if you’re not mindful, it is possible to give at the expense of yourself. Be sure you don’t let your heartstrings control your purse strings.
Forethought and planning should extend over all your financial decisions, including charitable giving. For a variety of reasons, many don’t follow a plan. Some give whatever’s left in their budget, perhaps not as much as they’d like or tempting them to give more than they can afford. Others give at the end of the year for the tax break. Alternatively, perhaps charitable giving isn’t planned for at all, which allows one to be swayed by emotion when the right cause comes along. Suddenly, they can be committing based on what they feel rather than what’s best for their finances.
Once you decide to factor your charitable giving into your annual financial plan, you can start doing your research. Not only do you determine which causes you want to support, but you can also investigate various organizations that service that cause. There are many websites that evaluate charitable organizations to ensure that your financial contributions or going where you want. Additionally, having your charitable giving worked into your financial plan allows you to turn down other charitable requests graciously. Should you be approached, you can mention your annual giving plan and that you will consider them for the following year.
Being mindful about your charitable giving also gives you the opportunity to influence your children or loved ones on how to do the same. Your actions become the example to your values. While you needn’t share all the details, you can openly share how you formulated your plan and why. The more people who become aware of how to consciously create an annual giving plan, the more people are actively working towards their financial independence.
I don’t think it’s possible to take all emotion out of your connection to a charitable cause, and I don’t think you should. However, I will always be an advocate of folks proactively working towards their financial independence. The key to that is approaching your finances with reason and logic, relegating our emotions to the backseat and holding firm to your purse strings.
As the cost of living rises, households worldwide feel the squeeze. Inflation impacts everything from groceries to housing to healthcare, and families struggle to make ends meet as they stretch their budgets to the limit.
Recent statistics show the inflation rate in the United States has risen to its highest level in over four decades. The Consumer Price Index (CPI) has increased by 7% over the past year alone. Inflation is a persistent increase in the prices of goods and services over time, leading to a decline in purchasing power of money. It affects the economy in many ways, including households, as it erodes their buying power, making it difficult to afford basic necessities.
A mature diverse couple shakes hands with a financial advisor.
How Is Inflation Impacting Households Today?
Inflation is affecting families significantly, with prices of goods and services rising rapidly. One area where inflation has a noticeable impact is the cost of groceries. According to the U.S. Department of Agriculture, food prices have increased by 6% in the past year.
Inflation is also impacting the cost of housing. According to the National Association of Home Builders, lumber has increased by more than 167% since April 2020, making building, renting or renovating homes much more expensive.
Other areas where inflation impacts households include transportation, healthcare and energy costs. With gas prices rising, transportation costs are increasing making it more expensive for families to commute to work or travel.
Healthcare costs are also rising, with medical services and prescription drugs becoming more expensive daily. Additionally, the cost of energy, including electricity and natural gas, is increasing impacting household budgets.
How We Got Here and Why?
The United States has experienced an increase in inflation in recent years, fueled by a combination of factors, including:
Supply chain disruptions: The COVID-19 pandemic caused disruptions in supply chains, leading to shortages of goods and raw materials and higher consumer prices.
Government stimulus: The US government has implemented several rounds of stimulus packages in response to the pandemic, flooding the economy with cash and contributing to inflation.
Labor shortages: The pandemic also caused labor shortages in many industries, which has led to increased wages for workers and higher prices for consumers.
Rising energy costs: The cost of energy has increased, with higher prices for gasoline and other commodities, which has increased the cost of goods and services.
Monetary policy:The Federal Reserve has kept interest rates low to stimulate economic growth, contributing to inflation by making it cheaper for consumers and businesses to borrow money.
These factors have all contributed to the current state of inflation in the US. However, inflation is complex and multifaceted; many other factors are also at play.
7 Tips to Help Navigate Inflation
Inflation can be a challenging economic environment for households to navigate. Here are tips from our team of advisors at Trilogy Financial that can help you manage inflationary pressures.
1. Calculate Your Inflation Rate
This measure provides a more accurate reflection of the inflation you are experiencing compared to the general inflation rate reported in the media.
A financial advisor can help calculate your personal inflation rate by analyzing your spending habits and identifying the goods and services that make up your personal consumption basket. This process can involve reviewing bank and credit card statements, examining household bills, and discussing significant lifestyle or spending habits changes to help you track the prices of these items over time and calculate your inflation rate.
2. Create a Cash Management Strategy
A cash management strategy will allow you to preserve your purchasing power and financial stability. A financial advisor can help you create a strategy that aligns with your financial goals and risk tolerance by:
Assessing your current financial situation,
Identifying your short-term and long-term cash needs, and
Recommending appropriate investments that balance liquidity, yield, and risk.
The strategy can involve diversifying cash holdings across different asset classes, using inflation-indexed bonds or money market funds, and considering alternative investments that offer potential inflation protection.
3. Discuss When and How to Use TIPS to Protect Against Inflation
Treasury Inflation-Protected Securities (TIPS) are a type of U.S. government bond indexed to inflation. As inflation rises, the principal and interest payments of TIPS adjust accordingly, providing investors with a hedge against inflation. A financial advisor may recommend TIPS if you want to protect your portfolio against inflationary pressures or maintain your purchasing power over the long term. It could involve assessing your risk tolerance and investment objectives and recommending an appropriate allocation to TIPS within a diversified portfolio.
4. Discuss Alternative ‘Inflation-Hedging' Assets
In addition to TIPS, assets such as commodities, real estate and stocks of companies with pricing power can provide inflation protection. A financial advisor can help you choose the right assets for your portfolio by assessing your investment objectives, risk tolerance and time horizon. As a result, they can recommend an appropriate allocation to inflation-hedging assets that balance return and risk, like commodity funds, real estate investment trusts (REITs) or sector ETFs offering exposure to companies with pricing power.
5. Strategize for How to Avoid ‘Tax Bracket Creep' as Income Rises
Tax bracket creep pushes an individual's income into a higher tax bracket, resulting in a higher tax bill. This move can erode the purchasing power of your income and reduce your savings.
A financial advisor can help you strategize on how to avoid tax bracket creep by considering tax-efficient investment vehicles, such as Roth IRAs, tax-loss harvesting and charitable donations.
6. Review Homeowners and Other Insurance Solutions to Avoid Under Coverage
As the value of assets, goods and services increase due to inflation, the cost of replacing them also rises. A financial advisor can help you review your insurance coverage and ensure they have inflation protection from risks.
Advisors can also educate you on the different types of insurance available and their benefits, such as umbrella insurance, which can provide additional liability coverage in case of a significant lawsuit or accident.
7. Reassess Long-Term Inflation Assumptions for Retirement Projections
Inflation can significantly impact retirement savings and planning because it reduces the purchasing power of money over time. Individuals will need to save more to maintain their living standards in retirement.
A financial advisor can help you reassess your long-term inflation assumptions for retirement projections by analyzing your current savings and investment strategies, projecting future inflation rates, and identifying potential gaps in your retirement plans.
From Us to You: Control Your Financial Future
As inflation continues to affect households, you should take control of your financial situation and work with a financial advisor to develop a plan aligning with your goals, risk tolerance and personal situation.
Trilogy Financial is a financial advisory firm dedicated to helping clients navigate the complex world of personal finance. We offer comprehensive services, including financial planning, investment management, and retirement planning.
If you are concerned about the impact of inflation on your finances, contact us today to schedule a consultation with one of our experienced advisors. We are here to help you take control of your financial situation and navigate through the challenges of inflation.
Female financial advisor meeting and discussing expert inflation protection tips with clients.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual 2. Investing involves risk, including possible loss of principal.
When we look outwards, most of our world can seem like chaos. Political events impact the market. Technological changes create new employment opportunities and put others to rest. Illness and misfortune affect those we love. It is easy to fall under a sense of helplessness in these moments. The key to weathering these storms is to focus on the elements you can control to make for a better financial future.
The first step is to create a solid plan. Many hope for a good outcome, but hope is not a strategy for a sound future, financial or otherwise. Your plan should reflect personal and financial goals. If you have created a personal mission statement, the goals in your plan should be inspired by that. The key aspect to a plan is that it identifies possible issues and gives you concrete steps to take to weather any storms.
Part of your plan should always include paying yourself first. There are going to be numerous obligations and goals to funnel your finances towards. Be sure that saving for your financial independence is one of them because there aren’t any do-overs when it comes to retirement savings. Just as important as saving is how you save. Make sure to fill your three buckets for more financial flexibility when you retire. The more options you have, the more control you have over your financial future.
After all that work, make sure to protect your plan. Life insurance will cover your debt and obligations, should you pass. Other forms of insurance can also provide during retirement or should you become disabled. Preparing for unfortunate or far-off events is a difficult thing for many to do, but a little planning in this area can protect everything you’ve worked so hard for, for your loved ones and your legacy.
None of us can see the future or know what tomorrow will bring. With a little forethought and planning, though, you can make sure you’re prepared for whatever life throws your way. Be sure to focus on what you can control and those strategies will help you build a better financial future.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
