(Go BankingRates) - Rampant inflation is causing consumers in the U.S. to rethink how they allocate their funds. In March 2023, GOBankingRates surveyed 1,056 Americans ages 18 and older from across the country and found that approximately 63% of respondents said that they try to shop smarter to save money, 32% cut back on building their emergency fund, and 18% have stopped saving for retirement.
From cutting back on discretionary spending to reducing their savings, American households are making tough choices to make ends meet. But with so many consumers shifting priorities, it begs the question: Are Americans correctly prioritizing how they’re changing their finances, and what should they be doing differently to weather the storm of economic uncertainty?
Do Experts Agree With Where Americans Are Cutting Back?
Gary Grewal, a certified financial planner and the author of “Financial Fives,” said, “I don’t necessarily agree with Americans cutting back on their emergency savings or retirement contributions.” However, he emphasizes that each person’s situation is different, so “if you have already reduced spending in discretionary categories like entertainment, and still must reduce spending to afford necessities, then cutting back on retirement contributions temporarily to avoid going into debt could be acceptable.”
Peter Hoopis, chartered financial consultant and owner of Peter Hoopis Ventures, also agrees that Americans should avoid cutting back on emergency funds and retirement savings unless absolutely necessary. He said, “While cutting back on spending is an excellent strategy for coping with inflation to have more disposable income for savings, it isn’t such a great move to cut back on retirement and emergency fund contributions, as these are essential investments for your future.” Plus, your nest egg may lose purchasing power during inflation, making it even more important to continue contributing to retirement accounts to keep pace with rising prices.
Actionable Tips To Help You Get a Decent Grip on Rising Prices
Here are a few actionable tips to help you combat inflation so that you can continue to contribute to your emergency fund and retirement savings.
1. Reevaluate Your Investment Portfolio
“Inflation layers more complexity on your financial decision-making. It erodes purchasing power and potentially the value of your assets, which is why it’s crucial to re-evaluate your investment portfolio to ensure it’s positioned in the right sectors to perform in an inflationary environment,” said Paul LaPiana, CFP and head of product with MassMutual.
To protect your portfolio’s purchasing power against inflation, you may want to look into assets that tend to outperform during inflationary times, such as real estate, gold and floating-rate bonds. Speak with a financial advisor to identify the best investment strategies that fit your needs and financial goals.
2. Negotiate Your Bills
Hoopis said if you’re cutting back on your savings because you’re struggling to keep up with bill payments, consider negotiating them. He recommends that you research and “compare prices for similar services to get an idea of the market rate.” Then, contact your service provider’s customer retention or loyalty department to see if they can offer you a better deal, “as they are usually authorized to give discounts or incentives.” If not, you can always transfer over to a competitor who offers better rates.
3. Increase Your Income
Saving for retirement can be challenging when you’re on a tight budget. If you have time outside of your 9-to-5 job, consider picking up a part-time gig, freelancing or even starting a side hustle to generate an additional income source. Another option is to negotiate a raise at your current job or seek out higher-paying job opportunities. By finding ways to boost your income, you can continue to build your nest egg and plan for your future without sacrificing your current needs.
4. Automate and Prioritize Your Savings
“Inflation does not necessarily change the steps you take in managing your financial life. It just amplifies the importance of smart decision-making when it comes to assessing your financial situation, establishing goals, and automating savings,” LaPiana said. So, when inflation hits, instead of cutting back on saving for retirement, you should try to make it your priority so that you can maintain the purchasing power of your money.
To make saving for your future easier, try automating your savings to ensure that a portion of your income is set aside for your retirement and emergency funds before it even reaches your bank account.
5. Use a Budgeting App
If you’re struggling to stick to a budget and keep your spending down during inflation, consider using a budgeting app like Mint or Personal Capital. By keeping tabs on your spending, you’ll have an accurate understanding of your monthly expenditures, which is essential when trying to stick to a budget. Plus, you can use the app to set savings goals — like paying off debt or contributing money to your retirement accounts — so that you’re more motivated to reach these financial milestones.
When Will Inflation Go Down?
With rising prices and diminishing purchasing power, it’s natural to feel overwhelmed and uncertain about what the future may hold. If you’re wondering when inflation will go down, the answer is: It may take time. A September CNBC survey of analysts and economists revealed that most experts believe inflation won’t come closer to the Fed’s 2% target until 2024. So, in the meantime, don’t let inflation eat away at your hard-earned savings. Continue to contribute to your nest egg and emergency fund and make smart investment decisions to build a stable financial future.
By Jamela Adam
April 13, 2023
