Protect Your Finances from Inflation

With inflation running at a 40-year high and interest rates heading north, it is important to understand how the Federal Reserve’s actions will influence financial choices that you make in 2022 and beyond.

Here are some steps to consider to shield your finances in a rising-rate economy.

Make the most of your savings.

When the Fed increases interest rates, your savings account rate should also go higher… immediately. If your bank does not do this, be willing to shift funds to an FDIC-insured bank that does.

Be cautious in borrowing.

The rates on new mortgages, car loans and credit cards are likely to increase. Also, if you have a variable rate loan or carry credit card balances, you may find your monthly payments starting to increase. Be prepared and rebalance your budget.

Review your investment allocations.

Market volatility may increase because rate increases are not completely predictable. Staying the course with a well-diversified portfolio is a prudent strategy. However, you may want to review your investment allocations.

Look at Series I savings bonds.

U.S. government-backed bonds have two interest rate components: a fixed rate and an inflation rate. The fixed-rate is set when the bond is issued, the inflation rate resets semi-annually based on the Consumer Price Index. Know that bonds must be held for at least one year and if you redeem within five years, there is an interest penalty.

Consider creative use of Roth IRAs in an emergency.

With Roth IRAs, early removal of the initial contribution is tax and penalty-free, so in an emergency you could tap these funds. However, if you dip into earnings you will be subject to income tax and possibly the 10% early withdrawal penalty.

For more specific guidance on how inflation may be impacting your financial planning, consult with an Alloy Silverstein Financial Services, Inc. financial advisor.

This article is from Alloy Silverstein’s Summer 2022 Client Alert newsletter. Download the full issue or subscriber to future enewsletters at our Publications page.

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