Inflation and Your Finances

Inflation and Your Finances

February 08, 2022
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If you’ve been watching inflation news in recent months, you might have found it a bit overwhelming. I know at my house, my son and I are paying more for everything from milk to batteries to clothing and appliances.

I want you to know that I have been watching inflation closely (boring, I know) and keeping tabs on various economic indicators. Sometimes, as you know, the “devil is in the details.”

In economics, inflation refers to a general progressive increase in the prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money. 

Inflation is a symptom of economic recovery. In the U.S. right now, it’s being driven by a few overlapping factors resulting from the Covid-19 pandemic: low interest rates set by the Federal Reserve, several rounds of direct government stimulus to both consumers and businesses and pent-up consumer demand that is being unleashed as the U.S. reopens.

All of this has led to demand outpacing supply, causing shortages and price spikes in categories of goods including semi-conductor chips, used cars and housing, among others. 

If you remember, it was not that long ago that many of us were afraid to even emerge from our homes. As a result, people weren’t spending. But now, consumers have been making up for lost time. This is commonly known as, "revenge spending." 

Here’s how higher inflation could cost you and what you should do about it. 

Consumer Goods

Inflation erodes the average person’s purchasing power. Everyone’s true inflation rate is different, because we all buy different products and services. You can expect to pay more for used cars, car rentals, furniture, airline fares, restaurants, hotels and everyday essentials like groceries and gas.

Used car prices rose 29.7% compared to last year, for example, while clothing costs 5.6% more. Housing and remodeling supplies are also sky high. This means your paycheck is not going as far as it once did unless your wages are increasing at the same pace, which has not been the case for most individuals.

I am not advising you not to spend money. However, I am advising you to be mindful of the increased prices and how they will impact your finances. This is a great time to cut out unnecessary expenses.

Savings Accounts

With interest rates on some savings accounts around 0.01% (Wells Fargo), inflation can make your cash worth even less. But that’s no reason to move it around, especially your emergency fund. Your savings are not designed to make you rich. It’s meant to provide a financial cushion, should you need it.

If you have more idle cash than you need in an emergency fund (we recommend having 6 to 12 months worth of expenses stashed away), then you might want to consider investing some of it. 


It’s impossible to predict how inflation will affect all of your investments, but it will decrease the value of long-term bonds, which generally pays a fixed income amount every year. This may impact retirees or those close to retirement.

If you are an investor with a longer time horizon before retirement, you don’t really need to worry about these short-term impacts. You should be fine sticking with your current investment plan, which is probably stock-heavy. Historically, stocks have been a decent hedge against inflation, because they can potentially generate returns in excess of the inflation rate.

Long-term investors should continue investing in a broadly diversified portfolio of low-cost stock index funds. If you have a 401(k) or IRA invested in a target-date fund or other stock index fund, then you don’t need to do anything. 

It’s human nature to want to react in times of uncertainty, but it’s best to not get too caught up in the news around inflation. When you initially designed your investment strategy, your level of risk exposure, time horizon and end goal should have already been taken into account. As you draw closer to retirement, I recommend that you adopt a more "conservative" approach to investing (wealth preservation).

I hope this helps you put today’s “inflationary” prices dilemma into perspective. As always, give me a call (888-812-0448) if you’d like to chat about inflation and how it's impacting your finances, or anything else that’s on your mind.

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To your success!

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with Gowdy Financial Group, LLC., broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.

Gowdy Financial Group, LLC., is a Fee-Only, Financial Advisory / Financial Planning Coach dedicated to helping women, from all backgrounds and income levels, get out of debt, save toward your goals and enjoy the freedom that comes with being in control of your money. We don't sell products; we provide solutions. "Your Goals. Our Solutions." Serving Clients Nationwide.

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