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Inflation-Proof Your Finances: 7 Expert Tips from a Financial Advisor

By Trilogy Financial

May 22, 2023

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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 couple seeking help from a financial advisor. — 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 with clients. — Female financial advisor meeting and discussing expert inflation protection tips with clients.

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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 is the “end” of this Coronavirus season? Do we return to “normal” at the end of the summer? I have no idea. However, I do know that when it happens, I will have already given intentional thought to my plan to return because there are some lessons learned and best practices to hold on to during this period of being at home with my family and work. Here are just a few I’d thought I share:

Be Present. Being more present has always been a pursuit of mine. And amidst a shelter-in environment, I’ve been more present without the back and forth to the office. When we are present, we thrive. When we are present, we are listening to our clients. When we are present, we are having more fun with our family. Compare it to being in the zone in athletics. We are solely focused on the conversation or task at hand, making us ultimately more effective as leaders and parents. Be present.

Be Proactive. Even though none of us anticipated the spread of this virus, there have still been plenty of opportunities to be proactive. Despite the uncertainty, a forward-thinking strategy creates freedom and reassurance. Having the flexibility to make anticipated adjustments and then course correct from there helps us weather the difficult days and be ahead over the long-term. This relates to our financial strategy and our day-to-day structure with kids at home. Have a plan, discuss it, and see it to completion. That might result in a strategy to invest in the market with dollar-cost averaging or decide to double recipes so you don’t have to cook as much. Either way, be proactive in life and at work.

Keep Up Good Habits. I have enjoyed the opportunity to connect over Zoom. I’m still improving my ability to read the emotion through the technology but with the effectiveness of virtual meetings, could I plan to only have Zoom meetings on Friday and stay at home? This would give me a few more hours to spend with my family. I don’t think my clients would disagree with that. Give it some thought. Have there been practices at home that should continue? Read for 20 minutes in the middle of the day? Exercise at lunch?

I’ve been grateful for this time and yet I know, this has created immense difficulty for most people. Through my numerous conversations with clients and friends, I’ve been encouraged by the attitude and fortitude these times require. Here’s to having a plan before we return to normal again.

“The most powerful weapon against stress is our ability to choose one thought over another. Train your mind to see the good in this day.” –Marc & Angel Chernoff

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine what is appropriate for you, consult a qualified professional.

Investment Insights

Frugal Money Saver: The Pathway to Early Retirement Through Financial Planning

By Trilogy Financial

February 20, 2024

Have you ever envisioned a life of Financial Freedom and Leisure?

Have you ever envisioned a life where the chains of daily grind are broken well before the conventional retirement age, paving the way for a life of financial freedom and leisure? Embracing financial discipline and frugality can pave the way to a comfortable early retirement, answering the pressing question: Can meticulous financial planning and a frugal lifestyle significantly hasten your journey to early retirement?

What Makes Financial Planning Crucial?

Financial planning goes beyond merely saving a portion of your income; it's about understanding and rectifying financial bad habits that may impede your journey towards financial stability. Everyday financial misbehaviors such as impulsive spending, credit card debt, and the lack of a structured financial plan for emergencies often go unnoticed but have a long-term detrimental impact on financial health. Addressing these personal finance habits is the first step in financial planning.

Why is Debt Management Essential? A key aspect of financial planning involves managing or eliminating debt, which can otherwise consume a significant portion of your income in the form of interest payments.
- Did you know in the US for 50-59-year-olds the average debt is $23,719¹.

How Can Budgeting Secure Your Financial Future? Being unsure of where your money is going is a red flag. Budgeting is crucial to track and control spending, ensuring your expenditures align with your values.
- Did you know the average individual aged between 65 to 74 spends about $55,000 on living expenses annually².
How do Savings and Investments Impact Your Retirement Goals? Setting aside money for an emergency fund and future investments is essential. Automating this process by having a portion of your income transferred to savings or investment accounts can help in cultivating this good financial habit.
- Americans believe they need an average of $1.7 million to retire comfortably, although many won't accumulate enough net worth to retire³.
- As of 2019, only 11% of Baby Boomers managed to save up to $500,000 for their retirement².

What Does Adopting a Frugal Lifestyle Entail?

Frugality is about making informed and restrained financial decisions to save money. A frugal lifestyle encourages avoiding unnecessary expenses and finding value in what you spend.

Examples of frugal practices include avoiding spending triggers like malls or online shopping platforms, utilizing cash over credit to prevent overspending, and finding cost-effective alternatives for everyday expenses.

Did you know 20% of Americans don’t save any amount of their yearly income, and 42% have less than $10,000 saved for retirement⁴.

What are the Key Components of Financial Planning for Early Retirement?

Emergency Fund: Ensuring you have an emergency fund can help buffer against unforeseen circumstances like a job loss or medical crisis, which might otherwise derail your financial plans.
Investment Strategy: Diversifying your investments and aligning them with your retirement goals is imperative for financial growth.
- 84% of Americans have a higher income than their parents did at the same age, indicating potential for savings and investment if managed wisely⁴.
Tax Planning: Efficient tax planning can help in preserving your wealth and ensuring more of your money is working for you rather than going towards taxes.
Healthcare Planning: As healthcare costs can be exorbitant, planning for these expenses is crucial to avoid financial strain in later years.
- Healthcare can be a significant part of living expenses, as seen in the $55,000 annual spending for individuals aged 65-74⁵.

Which Tools and Resources Can Aid Your Financial Planning Journey?

There are myriad tools and resources available to aid in your financial planning journey. Budgeting apps, financial advisors, and online courses are excellent resources. Trilogy Financial, for instance, offers a Decision Coach program designed to provide additional accountability and coaching to individuals seeking financial guidance.

37% of workers aged 25 and older, and 19% of retirees, report not knowing where to go for financial or retirement planning advice⁵.

Easily Meet with a Certified Financial Planner.

How Have Others Achieved Financial Independence and Early Retirement?

The quest for early retirement often begins with a thorough re-evaluation of one's financial plan, identifying areas of improvement, and capitalizing on unforeseen savings opportunities. The year 2020 saw many Americans saving more, with an average of 10% more money saved compared to 2019, mainly due to lifestyle changes induced by the pandemic. Some redirected these savings towards home improvements, while others saw it as a stepping stone towards drafting a solid financial plan aimed at debt reduction, college planning, or accelerating the journey to financial independence.

Various individuals and communities dedicated to frugal living and meticulous financial planning have emerged over the years, showcasing diverse pathways to early retirement. Here are a few noteworthy examples:

Juan's Early Retirement Ambition: Juan, an aspiring early retiree, aimed to bid farewell to his federal job by 2031 at the age of 43. His strategy revolved around living off savings, investments, and dividends post-retirement to enjoy more time with family and delve into philanthropic ventures. Though new to the Financial Independence, Retire Early (FIRE) movement, Juan's no debt and $85,000 asset accumulation puts him in a favorable position towards achieving his goal¹.
- The FIRE Movement: The Financial Independence, Retire Early (FIRE) community exemplifies the synergy between frugal living and early retirement. Members of this movement, like Juan, embody a lifestyle of extreme savings and frugality, aiming to retire much earlier than the conventional age².
Young Adults Eyeing Early Retirement: The allure of early retirement isn't confined to older age groups. One in four individuals between 18 to 34 years old has set early retirement as their significant financial milestone, driven by the principles of frugal living and meticulous financial planning³.
A 5-Year Transition Plan: A couple outlines their 5-year plan towards financial independence, with one partner continuing full-time work for an additional 3-4 years, demonstrating a balanced approach to achieving early retirement while maintaining a comfortable lifestyle⁴.
Frugal Living as a Fast Track to Early Retirement: The narrative of saving 75% of income, a hallmark of frugal living, expedites the journey towards early retirement, allowing individuals to accumulate substantial savings, invest wisely, and achieve financial independence sooner⁵.

These cases highlight the transformative impact of frugal living and prudent financial planning to achieve early retirement dreams. They speak to the importance of continuous financial plan evaluation, adapting to changing circumstances, and leveraging savings opportunities to expedite the journey to financial independence and early retirement.

Conclusion:

The road to early retirement is laden with challenges, primarily stemming from our own financial bad habits. However, if we create a financial plan, adopt a frugal lifestyle, and leverage available resources, overcoming these challenges and retiring early is an achievable goal.