How to Minimize Your Exposure to Inflation

Stockpiling items and investing help consumers fight inflation risks.

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The effect of inflation causes a general increase in prices and reduces the value of your dollar. The United States is currently in a period of relatively low inflation but if you have filled up your gas tank or bought groceries recently you probably felt the sting of higher prices. There is not anything you can do about the rate of inflation but there are some things you can do to reduce the effect of inflation on you.

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Find alternatives

One strategy for reducing the effect of inflation is to find alternatives to the product with the inflated price. An example from the book, Your Money or Your Life, is if the price of orange juice skyrockets due to an early freeze then you would switch to drinking apple juice instead. If gas prices are high you might vacation closer to home rather than driving across the country. Rather than using a stamp just use your bank's free billpay. There isn't always going to be a cheaper alternative available but with a little thinking you will often be able to find a reasonable substitute.

Stockpile items

If you find an item at a bargain price or have a reason to believe that the price of the item will rapidly increase it could be a good idea to stockpile that item. Some items are easier to stockpile than others and issues of how much storage space you have available and the perishability have to be considered.

Some of the suggested items to stockpile to reduce the effect of inflation are clothing, non-perishable foods, household products, and health and beauty products. This strategy does not work for all items but if you examine the items you buy regularly you will find many of them can be stockpiled.

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Investing

There are many different strategies for investing to fight inflation. Some of the commonly recommended investments are commodities and stocks. The idea is that these investments will rise faster than inflation and thus preserve the purchasing power of your money. Treasury Inflation Protected Securities (TIPS) are an investment that is designed to provide protection from inflation. There is no guarantee that any of these investments will rise faster than inflation so you should do your own research before making any investment.

You also have to consider the effect of lifestyle inflation on your finances. Since the average standard of living has increased over the years inflation is not as bad as it seems. You cannot avoid the effect of inflation but using these strategies will help reduce the effect of inflation on your finances.

Andy Hough writes about frugality and living well on a small income at TightFistedMiser.com.