Embracing Inflation: Two Ways to Help Protect Your Finances

U.S. Money Reserve
6 min readOct 19, 2022


by Sherry Hao, Controller, U.S. Money Reserve

(image via northwesternmutual.com)

Inflation is here to stay (at least for now). Here are two things you can do to protect your personal finances.

If the global pandemic has taught us anything, it’s just how interconnected we all are. Whether we’re looking to buy the latest and greatest tech gadget or working with partners overseas to build a new product, the COVID-19 outbreak has shown us how reliant we are on a global supply chain that can be and has been easily disrupted. When restrictions began to lift, and as the pandemic has begun to wane (at least in some parts of the world), demand has come surging back and with it, a rising tide of inflation. As the Federal Reserve here in the United States shifts its monetary policy to combat inflation, numerous concerns are on the horizon. Here’s what you need to know about inflation, how best to embrace it, and two ways to protect your personal finances.

What Is Inflation, and How Does It Affect Your Personal Finances?

I’ve talked about inflation in previous posts, but it’s worth revisiting to get a better understanding as it pertains to our own personal finances. We often hear it talked about in the media and tossed around by the Federal Reserve, but what is inflation, and how does it affect our personal finances?

First, it’s important to understand that inflation happens when the prices of goods and services increase over a period of time. In turn, inflation causes a decline in purchasing power for consumers.

While there are many reasons for prices to increase, especially in light of the effects of the COVID-19 pandemic, inflation impacts both consumers and businesses because it takes more money to buy the same goods or services. Essentially, consumers and businesses can’t stretch a dollar as far as they did in the past.

The Federal Reserve (the Fed) is the U.S. central bank and a governing body that keeps a close watch on the United States economy and global economies to keep capitalism humming. The Fed tries to ensure that we don’t end up in a depression or recession like those in the past, and they keep an eye on deflation (which is the opposite of inflation) and a number of other indicators to get a sense of the health of the United States economy and global economies. The Fed sets monetary policy in the United States with the goal of keeping the United States economy and global economies humming on all cylinders. Inflation is one measure of an economy’s health, and the Fed is much like a physician doing a checkup to see how well all the systems of capitalism are working. Thus, for example, if a gallon of milk cost $3 in 2019 but today costs $5, this could be an example of inflation — but it’s a bit more complex than that. A rise in the price of just one good doesn’t indicate inflation; rather, the Fed uses a tool called the Consumer Price Index to better understand inflation.

The Fed looks at the Consumer Price Index, or CPI, a key measurement of inflation. The CPI measures the change in the prices of a selected “ basket of goods” of more than 94,000 items that are scientifically selected to represent what consumers regularly purchase. As of September, the Fed raised rates by another 75 basis points, to a target range of 3 to 3.25%, to curb inflation. In the most recent release, the Fed said that they are targeting a “terminal rate” of 4.6% in 2023 — at least at this point in time. A terminal rate is the goal or endpoint that the Fed plans to raise rates to. Members of the Fed have publicly said that we should expect rates to climb to around 3.9% by the end of the year. At the same time, the head of the Fed, chairman Jerome Powell, said that by raising rates to such a level (the highest since the 1980s), the central bank could (and in fact, probably will) cause a recession.

How could this impact your personal finances? The answer to this is a little tricky — since consumer behavior is often psychological and not necessarily based in reality. If consumers perceive (or believe) that prices will rise and their money won’t go as far, they’re likely to try and hoard or buy up all the “cheaper” deals to protect themselves from reduced buying power. According to a Yale professor, sales of non-brand-name products (or generics) will often go up because consumers think they are cheaper than brand-name items. In addition to this shift in smaller purchases, larger purchases like cars and real estate will begin to slow down because the cost of borrowing money (the interest rates that the Fed helps set) becomes more expensive. That, in turn, may force the prices of homes in particular to come down and will likely cool off the hot housing market here in the United States.

There Are Ways to Protect Your Finances From Inflation: Here Are Two of Them.

While all of this sounds pretty scary — especially the idea that you simply won’t be able to afford the things you need or want in the same way that you used to — there are a few specific things you can do to protect yourself from rising inflation.

Stick to Your Budget and Pay Down Your Debt.

I’ve talked a lot about the importance of creating and sticking to a budget — but during an inflationary period, it’s even more critical. A budget isn’t something you can just set and forget as prices rise or as demands in your life change, so make sure you continually check in with your set budget and make adjustments as needed. This includes paying down your debt.

As the Fed raises interest rates, you may be tempted to start relying on credit cards to buy the things you want. That is a tricky proposition, and it can land you in a place where you have more debt than you have the ability to pay off. As interest rates rise, your minimum payments will increase, too. The more debt you carry, the more you’ll have to pay down — so be sure to stay within your means and your budget and pay down outstanding credit card debt as quickly as possible.

Cut Costs at the Grocery Store.

One of the main places consumers start to feel inflationary pain is at the grocery store — and buying food is a crucial part of your budget! (See my earlier example about the cost of a gallon of milk.) According to CNN, food costs are up 11.4% this year, with margarine, sugar, eggs, flour, milk, and bread leading the pack in price hikes. But fruit prices actually came down slightly, as did bacon, pork roasts, steaks, and ribs. So what does that mean for you?

Well, the best way to protect your personal finances from inflation for these kinds of necessities is to do things like plan your meals, cook at home, and choose food that offers plenty of nutrition for your proverbial buck. Items like packaged goods or premade goods offer empty calories that don’t often satisfy our nutritional needs.

You should also consider comparison shopping and opting for non-name brands if you start to notice the cost of your favorite brands rising. Many grocery stores offer “duplicates” of popular brands that are more affordable and just as good as the brand-name versions. It’s always a good policy to check prices, but make logical decisions and choose wisely for what will work for you and your family. Also, consider using coupons or joining the grocery store’s loyalty club to get discounts on everything from gasoline to your favorite must-have brands at the store.

The Bottom Line on Embracing Inflation

The world economy is like a living and breathing entity that needs continuous care and attention. The same goes for your budget and personal finance management — especially when facing increasing inflation pressures and interest rate hikes. By educating yourself on the ins and outs of inflation and what it means for you and your family and then taking logical, clear steps to ensure that you protect your finances, you can come through this inflationary period with flying colors. By revisiting your budget, paying down your debt and managing your grocery spending, you’ll be sure to weather this inflationary storm with aplomb.