How to Outsmart Inflation, According to Experts

Excited older couple giving high five, celebrating good news


Cheapism is editorially independent. We may earn a commission if you buy through links on our site.
High Gas Prices and street scene

Feeling Deflated?

As the economy sloughs off the effects of the pandemic and deals with the shock of the Russia-Ukraine war, inflation has reared its head. Though not rising as quickly as earlier in the year, prices from the gas pump to the grocery store have still gone up, rising 7.7% from a year ago, according to the Labor Department. As that indicator continues to hit 40-year highs, there are things you can do to stay ahead of increasing prices.

Related: How to Get Cheaper Gas as the Price of Oil Rises

Black man preparing vegetable salad

Adjust Spending and Lifestyle Habits

What costs more during periods of inflation isn’t universal — different sectors experience different rates of increase at different times. But simple money-saving strategies can help you outsmart inflation no matter what’s surging. “Cook at home more often, consider generic brands as replacement for name-brand items, use coupons and purchase discounted items, buy in bulk for items that you can easily store, and minimize prepared food delivery,” said John Pilkington, senior financial adviser with Vanguard Personal Advisor Services.

Related: Over 35 Store-Brand Foods That Deliver Quality and Savings

Close up Business man counting the money spread of cash in wallet.
Nopphon Pattanasri/istockphoto

Minimize Cash Holdings as Inflation Rises

It’s only sometimes true that “cash is king.” Periods of higher inflation are not the time to hold too much of it. “Don’t hold cash beyond what you need for emergency funds or to buffer against short-term market fluctuations,” said Scott Ashline, founder and private wealth adviser with Northwestern Mutual’s Private Client Group, Ashline Financial. If you hold too much cash, you’ll actually lose buying power as your money sits in the bank earning extremely low interest rates.

Related: The Price of Bacon the Year You Were Born

A little girl using a laptop with her mom while the dad is cooking in the kitchen

Save Money in the Right Place

If you want to beat inflation, sticking money under the mattress is not the way to go — but a traditional bank account isn’t much better for earning power (though it is safer). “Cash instruments have historically performed below average inflation, and even worse, any interest earned is likely to be taxed as regular income,” Ashline said. He recommended instead considering a money market account after assessing your risk tolerance.

For more smart money tips, please sign up for our free newsletters.

looking at bills
Morsa Images/istockphoto

Review Your Progress

Taking a “set it and forget it” approach to savings is rarely a good idea. It is important to determine goals and review progress periodically. This monitoring allows you to adjust if necessary, said Meredith Stoddard, vice president of Life Event Planning at Fidelity Investments. You may discover a need to save more or change your investment strategy. When you review your progress, you can make adjustments before it is too late.

Home Mortgage Refinance
Bill Oxford/istockphoto

Evaluate Your Debt Situation

Right now is a great time to re-evaluate your debt, especially mortgage debt. With mortgage rates at historic lows, refinancing could be a simple way to outsmart inflation. “A low, fixed rate is an advantage to the borrower in an inflationary and rising interest rate environment,” Pilkington said.

Financial Advisor Meeting with Couple

Rebalance Your Portfolio

Changing times can affect a business as much as its own innovations or missteps, whether the issue is consumers opting for healthier choices than soda, a pandemic making travel overseas impossible — or people buying fewer luxury goods when money seems tight. Rethink what you’re investing in to account for the economy and what lies ahead. “Rebalancing allows you to take profits of your better performing assets and purchase those that have not performed as well, thus ‘buying on sale,’” Ashline said.

Pen Allocation

Ensure Investments Are Diversified

Unless you’re a day trader, you probably can’t guarantee being able to move investments around quickly enough to account for every change in the economy or society’s tastes. That’s why you should make sure an investment portfolio has a mix of products in which some may rise as others fall. “Having a well-diversified investment plan can help you weather a variety of conditions throughout your life,” Stoddard said. Keep reading for some ways to diversify your portfolio.

Couple with financial adviser
istockphoto/Drazen Zigic

Invest in Some Non-U.S. Holdings

It is difficult to predict in the long run how inflation in the United States will stack up against that of other countries. Diversifying a portfolio to include some non-U.S. holdings can help if domestic inflation is worse than foreign inflation. According to the Fidelity Learning Center, investing in non-U.S. companies provides indirect exposure to foreign currency. 

Stack of documents Treasury Inflation Protected Securities TIPS.

Consider Holding TIPS

TIPS — Treasury Inflation Protected Securities — help diversify a portfolio too. “TIPS are designed to protect against inflation. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater,” Ashline said.

A group of savings bonds
JJ Gouin / istockphoto

Assess the Risk and Reward of Holding Bonds

If you have a long time horizon for savings goals, investing in stocks rather than bonds is more likely to yield real returns. “Safer bonds are priced to yield negative real returns,” Pilkington said, offering the example of buying a 10-year U.S. Treasury Note at a 1.3% interest rate when the 10-year inflation expectation is 2% — in which case the bond will lose 0.7% in real terms each year. Past returns are no guarantee of future returns, but historically, stocks do a much better job of beating inflation than bonds. 

Related: Money-Saving Tips From Grandma That Don't Work Anymore

Overlooking Spousal IRA Investments

Don’t Panic

Reviewing investments and other savings doesn’t mean making rash decisions when the market drops. “Investing in the stock market comes with a certain level of risk. Don’t let the short-term market fluctuations affect your financial decision-making,” Ashline said. Remember, most investments, such as those for retirement, are typically intended for long-term results.

Detail of hand filling the fuel tank
Pollyana Ventura/istockphoto

Be Flexible in Your Retirement Years

Housing, food, transportation, and health care costs are the four major categories retirees need to keep in mind, according to Rob Williams, vice president of financial planning at the Schwab Center for Financial Research. When one category experiences more inflation, consider cutting back or using saving strategies. For example, with transportation costs high right now, retirees may want to reevaluate or push back their travel plans.

Social Security Benefit Statement with calculator
Bill Oxford/istockphoto

Have a Guaranteed Source of Income in Retirement

Having a guaranteed source of income in retirement doesn’t mean you have to work forever; this category includes Social Security payments, defined benefit pensions, or annuities with adjustments for cost of living increases. Look ahead and make sure you have one or more of these plans available to you as a hedge against inflation. 

Related: 12 Ways to Get the Most Out of Social Security

Couple talking to finance advisor at home
FG Trade/istockphoto

When in Doubt, Work with a Financial Adviser

If you’re not sure your savings strategy will outsmart inflation, you don’t have to go it alone. Working with a financial adviser can help you form and enact a more inflation-proof plan that’s tailored for your situation. General advice is helpful, but it doesn’t take into account your personal factors

Related: 14 Questions to Ask Before Hiring a Financial Adviser

Find more smart personal finance stories right here.