A Simple Playbook For Inflation

Inflation continues to be one of the main stories of the year. With this seemingly going to be the case for some time longer now, I thought it'd be good to go through a couple really simple steps to take during inflationary times and some personal tricks I use in my own life during these times as well. Thanks for listening!

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Eddie Thomas: 0:00

Hey guys, welcome to Life finance and in between podcast, I'm your host, Eddie Thomas. This is brought to you by wealth management services in Hershey, PA. And it's Tuesday, May 31, the day after Memorial Day, I hope everyone had a good long weekend. I hope everyone relaxed, enjoy the weather opals nice wherever you are. Me, my girlfriend went down to Delaware, where her parents have a place and just kind of hung out on the beach all weekend. It was nice. It was nice. But we came back here. And I, oh, it's hotter here than it was down there. Which is not what you want. When you're not at the beach. I'm not really, I don't like the heat in general. So the fact that it's like 90 degrees out today, and I gotta cut the grass and everything else. It's tough. It's tough. It's kind of like a sit inside in the ACL day kind of day. But what can you do? It was nice getting back and kind of get back into the swing of things, even though it's just a long weekend. Regardless, it's always nice to have some sort of routine, at least in my mind. So back at it today, this morning, I actually had a couch delivered, which didn't take six months to get to me even with supply chain issues. So that was nice, only we only bought it like two weeks ago. And thank god here. So I guess we are lucky. But it was nice, being able to get it this fast, but delivered this morning. And oh, it was a hassle. It was like a two hour ordeal, I thought it was gonna be much faster to get in the door, get it set up, get the leg screwed on, get the room set up to how we wanted it took much, much longer. And then when it's 90 degrees outside, and you're doing all that, not super fun, but it's done. I'm happy that it's done. It looks nice. Looks nice. But when I did finally get to work today. And I kind of sat down, I was looking through catching up from the weekend emails and just kind of looking through as to what was going on in the world. And we've talked about it before. And if you're a client of mine, and if sad sat down with me, we've talked definitely talked about it in our meetings. But inflation, again, was a big, big word. And it's a word we've heard all year, and we're gonna hear all year. But this one was talking a lot of articles and a lot of just kind of opinions on what retirees are doing with inflation, what people that are about to retire doing with inflation and how even young people are dealing with it, I saw ages 34 through 3044, or something along those lines, they were cutting their savings rate up to meet these higher prices. And then they had solutions if you're retired and moving into retiring, what you should do to combat inflation. And the super easy, quick, straightforward answer to this is be patient and remain invested in the market. But I know that's not always easy. So I made a quick list on my end. Because this is an important question, it's it's incredibly important to be able to change your strategy when you need to, both in life and investing. And just kind of if you need to change a little bit, or you need to make some sort of altercations or updates or just be more adaptable, it's, it's good to have some sort of less some sort of plan in mind when times like this come up and inflation is a little bit higher than we'd like. So I made a little list as to what I do and kind of some tips that I've been following and been giving my clients to just get through these times and see that this too shall pass, like I said on the last episode, but I know it's not always as easy said it's done. Because when you're living in it, and it's not passing, at least not tomorrow, it feels like it's forever. But let's talk through it. So, what to do during inflation, what to do during smart stock market volatility, what how to make sense of it, what's the strategy. And for one, I'll start when you're younger, and then I'll move into older. So when you're younger, and you're having inflation and stock market volatility, you just want to make sure that one your day to day, utilities are being paid any bills you have being paid, your car payments being paid, and that stuff's not being kind of left in rollover and it sounds pretty simple. It sounds straightforward, but it's important to make sure that you take note of what those levels are for those payments, what your monthly cash flow looks like and plan accordingly for when prices increase a little bit. Are you ready for it? So let's say you have all your ducks in a row you have everything kind of allotted. You have everything paid for, you know, month to month, you're going to be okay. What do you do when you're not saving as much money as you were? Because like I said, that article I saw noted that people are saving less Now, that's to be expected, we're spending more as consumers that we can finally do things again, because COVID, and for all intensive purposes over. So what do we do now that we don't have that same savings rate. And it's pretty straightforward. So like I said, get your day to day stuff done, and then have a strategy and have a plan around what the next steps look like. And so if your savings rates come down, here's what we need to tackle, we need to make sure that one, we have a emergency reserve setup. And whether that's three months of expenses, six months to expenses, or a year of expenses, we need to make sure that should something happen or should something unexpected come up, we have the ability to pay for that. And that should just be in my opinion and cash on the sidelines not moving anytime soon. I understand holding cash and inflationary times is painful, because your cash is losing value. But for peace of mind, at the end of the day, it's worth it to just hold that in cash and not worry about it at all. So there you know you have your little safety bucket. Now, once you have that, if we're not saving for any sort any other big purchases, if you're not buying a vehicle, if you're not remodeling a house, if you're not taking a big trip, it's time to start investing, especially when we have stock market volatility, it's time to understand the markets gonna go up and down. And yes, as of late, it's been down more that's been up. But this is a perfect time to get in and invest, especially if you're younger, you have 1020 30 years plus of growth coming, or potential growth coming from the ability to invest in lower prices today. And we're seeing deals that we didn't see a couple months ago or a year ago. So you have to take advantage of that. So if I had to break it down into one sentence, for younger people, it's understand that you need to get your routine stuff down your ABCs, your C's get those done, get the bills paid, get the car paid, get that stuff paid, from there have 363 to six months, or maybe even a year of expenses on the side for your sleep well at night. And then anything else out of that if we're not saving for an additional purchase, look to invest it. I'm not saying you can't keep it in cash, because we don't know what's happening. That's fine, too. But the more opportune option is investing it. And you do your research on that side of things, or reach out to somebody that you feel comfortable talking to about investing. But that would be potentially what I like to do with that money. Again, it might hurt in the short term, if it goes down, but long term, you'll be better off for it. Now, that's younger, and it's there's no question that when you're younger, dealing with uncertain times like this is a little bit easier because you have time to get through this. But when you're older, when you're working towards retirement or in retirement, things feel a little more serious things feel a little bit more like you need to see an immediate fix. And that's understandable. It's completely understandable. And I would say that patience is obviously a virtue here and understanding we've been here before we'll be here again. But there's some other steps you can take as well to make give yourself that peace of mind. And a lot of it echoes what I just said for the younger generation. So having that three to six months, even a year, if you're older, I'd rather you have six months to a year of savings on the side in case something goes wrong. Because typically, when you're older, you just have more expenses, you're spending more money, and you have more, I guess duties and obligations to your name. And I know it's not fun, but that's the reality of the situation. So we'll say six months to a year of expenses and cash on the sidelines, ready if you need it for anything that pops up last minute. Once you have that, if you're still working towards retirement, it could feel a little bit worse when your account goes down. Investing account goes down. And I understand that completely. But the important thing here is it's just remain invested. You have the same opportunity that someone younger than you does, you don't have as much risk or at least potentially shouldn't have as much risk in the market meaning you don't hold as many stocks maybe you don't have as risky of holdings for your investments. But you have the ability to buy at lower prices when the stock market takes this takes a kind of sell off like it has and we're seeing inflation like we are. So if you have a 401k keep contributing. Don't stop contributions just because you see your account value going down. This is the perfect time to continue, contribute continue to buy low and see the fruits of your labor afterwards when the market turns around and life gets back to normal. But that's the main thing is just remain invested is the simplest, simplest way I can tell you to move forward. Secondly, and this is more so If you're working with someone with a financial professional, making sure that you're covering to the following things. One, you're making sure that what you're invested in risk wise is appropriate for you between stocks, bonds, and cash, you want to make sure that you have an appropriate risk allocation and appropriate investment allocation, that for one times like this happen, yes, you might see some volatility inside your portfolio. But there's a plan to get you from these times to the times where your accounts doing well, and things seem rosy, you need to have a plan in both the good and bad. And it's really easy to have a plan and a good. And it's not as easy to see a plan and the bad, but you need to make sure and have that conversation to make sure you have a plan for both. Well, that's a plan side your investments inside your cash flow models, whatever it may be, but you need to make sure you have a plan for both. And when you are planning for retirement or in retirement, you want to make sure that any plans you put together that show numbers on a page of whether you're going to be able to retire or not, you need to make sure that they're accounting for inflation. And we do that when we put those plans together, we make sure that we have that inflation hedge built in. And we use a an average number around 3%. Obviously, in today's world with the being 8% or so that number seems low. But it's not because you take the average, you take the average, it's impossible to plan for the day to day change. And these numbers, but it's easier to plan for averages, because that's what we've seen historically. So you need to make sure that you're taking the inflation average what it is year to year into play. So when we do have some higher elevated, I guess, spending times like we are like when you're just spending your normal, what you need to live in, it's costing a little bit more, you need to make sure that you have a plan that's built out to sustain that, both now and in the future. So if I had to sum that up in the one sentence, it's remain invested, continue to contribute into your 401 K like you have been, and additionally, having a plan that accounts for inflation long term. And having a plan inside your investment allocations that you are ready for something like market volatility that we were seeing and the inflation that we're seeing, you're gonna be okay, today, you're gonna be okay, tomorrow, you're gonna be okay, a month from now a year from now, five years from now. So make sure those things are in a row. Now, after we've tackled all that, what can we do? Because that seems easy, right? Keep invested, make sure your investments are appropriate for you, and make sure you're playing account for inflationary or kind of more volatile times. Now, what else can we do? And I've just kind of written down a couple things that I do. And you don't have to do these, you might have your own strategies that work for you. And I hope you do. And if you do, that's awesome. Keep doing them, especially if they're working. But for me, I'm someone who never carries cash ever. If you know me, I have a money clip. And in that money clip, I have four cards, I have two credit cards, I have my just normal debit card from my bank, and I have my license, I almost never use my debit card. So I use my two credit cards, I pay them off pretty much immediately. And I have my license there for when I need it. So I never carry cash. But when I do have cash, I use this as a sort of reward system when I do have cash. That is when I look to do things that I don't normally do. So I don't normally eat out a lot, or I don't normally go and grab food. Just on random nights out, I'll go out with my girlfriend, we try to go out and just kind of spend time together. But we don't do it, it's crazy amount of times. And I don't go out to eat outside of those times. But when I have cash, it's when I allow myself to a lot those dollars to do those things I don't normally do like go out. So perfect example, the last couple of weeks, I think I had some money from family for one reason or another. And they normally just give me cash. And I use that cash to go to Jersey Mike's or Chipotle or there's a restaurant smoked down the street from here, and I use that cash to go to those places. Again, I don't normally do that. But it's like a reward system. And the way that allows me to budget and kind of my budget, but manage my cash flow is I know I'm not going to do that all the time. And especially when times and things are costing more than they normally do. You don't want to be doing that all the time, you're gonna run yourself pretty tight on cash flow potentially. So that's one thing I just use cash as a reward system because I never carry it. And I know that once I run through the 20 to 30 bucks that I have the two to three meals that that gets me I'm not gonna go swipe my card to get that food, at least not anywhere near consistently enough to throw off my cash flow month to month. So that's one thing I do. The second second thing I do, especially when we start seeing Rising prices in gasoline. And this, this is something where I have the luxury of doing so considering where me and my girlfriend live, but I tend to walk a lot more. So if something's down the street, and it's something I used to drive through just for the convenience, I would also Okay, well, it's probably not worth the little bit of gas that it uses up and it's healthier for me to walk. So internal walk. Again, for the gas that saves me it's probably miniscule. But it's just something that I do that kind of lowers the wear and tear on my car, lowers the gas used on my car. And it helps get the extra steps in maybe not today when it's 90 plus degrees outside. But when it's warmer weather, that's what I'll end up doing. And I'll also cut back on like my want. So I'm not normally someone who buys myself a lot of stuff anyway. But especially in times when you can tell things are a little bit more expensive than they were and I want to make sure I'm keeping my savings rate at a rate that I feel comfortable with. If I see a pair of shoes that I could like I do, like, I'm probably not going to buy them if I don't need them. Same thing with clothes, I'm probably not gonna buy them if I don't need them. The big thing that I will admit I do spend money on when I go out is coffee, whether it's Starbucks Dunkin, it's a local coffee shop, I tend to spend more money on that than I do other ones. And even in times like this, when I see that cost more, and I just see myself wanting to match a certain savings rate and my cash flow month a month, I'll cut back on those things. And it's not, it's not as easy as just saying, Okay, I'll just cut back. And I understand that. But it's just having a system in place. So like I said that cash, when I have cash when I go out to eat only when I have cash, that's a system I have in place, when I have the ability to walk somewhere instead of drive if it's close enough, and I do so it's the system I have in place. And even when I cut back on the wants, almost I really really need it. And I understand it's easier said than done. But it's the system I have in place and everything, you just need a systems to save a little bit more if you're not comfortable with where you're at. And it helps when you're at the time where things cost more and you have a little bit of a sell off in the market. And your accounts aren't looking as pretty as they were, it helps to save a little bit more on the side if you want to. And if you're not worried about it, you want to keep spending and it fits in your plan your cash flow and you're you're good then by all means do that. I'm not telling you not to as long as it fits in the plan as long as it fits in your cash flow. And as long as you have a long term solution for the kind of more volatile times that we have sometimes. And then the last thing I'll kind of say is the big thing. Especially when you look into times like this one, I've said it a million times. But when they're more volatile, when you have more inflation, and you're either in retirement or you're close to retirement or even when you're young, pretty much any stage of life. You need to understand your goals, and we need to understand our wants. And we need to understand the exposure that we have through seeking those goals and wants that we have to inflation or we have to the volatility in the market that we have just personally in life. So when it comes to we want to retire in a year, or we're retired, now we want X amount of money per month, or we're younger and we want to invest or save X amount per month, we need to understand what that is, what those numbers are. And if we have a solid plan to get there. Because if we don't, it could look really good for a little bit. And then we have a little bit more of a volatile time like we've had today, or these past couple of months. And things look a little bit rockier and they shouldn't, things shouldn't change. When you have a crazy time like this, we should have a solid enough plan where we we don't have to lose sleep at night over these things. So it's just understanding our goals, understanding our wants, and understanding the systems that we have in place to make sure we're going to achieve those no matter what's happening in the market or our lives or inflation or anything along those lines. So it's just having a solid plan in place to get us from point A to B and then to see an end to D and then so on. So overall, guys, it's it all comes down to patience. It all comes down the systems in place. And all comes down to have a solid investing schedule and strategy around what our investing looks like and what our cash flow looks like and how it all comes together to give ourselves one answer that hopefully we can live with. But understanding that like I said in my last podcast, the signs are going to pass. It's we're not always going to be looking at inflation like we are the markets had a good leak week last week. And we're going to hope for a good week this week as well. But It's just in the meantime making sure we have our strategies and our plans in place to to get us through these times. So hope you're out there and have a good one. I hope you're enjoying the weather and everything else and I'll catch you guys on the next one. Securities offered through securities America Inc Member FINRA slash SIPC. advisory services offered through securities America advisors Inc. Wealth Management Services and securities America are separate entities. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at anytime based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results.