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With inflation rates topping 8% last year, the average American household is spending significantly more for the same goods compared to the previous year. Here are three ways you can address the impact of inflation.

Watch Out for Budget Creep

Budget Creep occurs when your expenses are consequently going up due to the increasing cost of goods brought about by inflation. Though reviewing a budget is hardly anyone’s favorite pastime, the effort could be an eye opener when you determine where those hard-earned dollars are being spent. Most of our clients can afford everyday luxuries but are also practical. How much more did your favorite restaurants cost this past year? Review your subscriptions (streaming services, for example) that auto renew each year. For fixed expenses such as utilities, internet, insurance, this may be a good time to check your rates and shop around. Using a resource like powertochoose.com can be very helpful in keeping energy costs down.

Review Homeowners Insurance

With the increased costs of rebuilding homes caused by the aftermath of natural disasters and high inflation, review your home coverage limits. Most insurance companies use cost estimators annually to reflect current construction prices. However, consider adding a “Guaranteed Rebuilding Cost” endorsement. Although this comes with an additional premium, it provides piece of mind knowing the policy will pay the full cost of rebuilding even if it exceeds policy limits.

Make an inventory of all the valuables in your home. Consider getting an updated appraisal when renewing scheduled coverages to reflect any increased values of personal property.

Check Yields on Cash Savings

If you have cash sitting in the bank that exceeds your emergency reserves, check your interest rates. Three of the well-known bank chains are paying as low as 0.01% - 0.15%! In today's high inflationary environment, you are leaving money on the table by holding cash at such low rates.

As of this writing, Schwab’s Value Advantage Money Market fund is currently yielding 4.26% while 1-Year Treasury Rate are now 4.75%. These are significantly better cash vehicles to combat inflation's toll on purchasing power. Tanglewood uses these short-term investment options in your portfolio whenever possible and can facilitate getting a client's other cash holdings working harder as well.

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