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Top 3 Ways to Beat Inflation

We are all seeing inflation rear its ugly head currently (early 2022). Estimates of inflation have centered around 7% but who knows for sure. What we all can agree on is that goods and services have definitely become more expensive. That means our money is worth less. So how can we beat inflation?

There are numerous ways. But as always, I will break not down into simple, broad categories and strategies. If you follow these strategies, you will beat inflation. Remember, I love the K.I.S.S. principle. So I’ll be keeping it simple.

beat inflation
The more fun kind of inflation…

First, how does inflation work?

Well, it’s basically like I said before, goods and services see their prices rise. Ultimately this means that $20 can’t buy you what it used to. Inflation is why hot dogs cost your grandma a nickel and cost us $5.00.

I’m not an economist so I’ll leave out extensive commentary of how and why inflation happens. In general though, an influx of cash into the economy results in more people having more money and paying more for goods and services. At first, the money stretches the same as before. But before long, sellers recognize this and start to charge higher prices. And so inflation occurs.

In the past few years, we have seen historically low interest rates making borrowing money very cheap. We’ve also seen the economy stimulated in a variety of ways. So, it’s not a complete surprise.

But the bottom line is that inflation is here. And more than usual. How long will it last? I have no idea. And don’t believe anyone who says they do.

So, our focus needs to be on planning to beat inflation

We need to minimize the impact that inflation has on our finances, on our purchasing power, and on our ability to follow and complete our financial plan leading us to financial freedom.

The top 3 ways to beat inflation

So let’s get into it!

1. Invest your money

This may seem like a no-brainer to many of you. But there are still so many of us who save a huge amount of money. And then don’t invest it. Instead, it sits in high yield savings accounts or money market funds with our brokerage. This is fine for your emergency fund, but not for the money that you want to be working for your financial freedom!

During inflationary time periods, having your money just sit there, effectively just stacked under your mattress, is just about the worst thing you can do!

Remember, inflation means that the purchasing power of your money is decreasing. If you are saving money and just letting it sit there, you are actually losing money, net worth, and financial freedom!

To compete with inflation, your money needs to be working for you. Your money needs to be making money. Your goal is to have your money make an (after-tax, after fee) ROI greater than the inflation rate. That means it’s making money for you and growing. At worst, you want it to at least approximate the inflation rate so you actively aren’t losing money.

I emphasize all of this because so many of us are scared to invest. And I get it. I used to be scared as well. It can seem intimidating.

However, by not taking action, especially in inflationary periods like now, your inaction is actually even riskier for your future!

And the last type of investor that I want to speak to in this section is the perfectionists…

If you are not investing your money because you can’t decide if you want 20% or 25% bonds or if you want a 5% small value stock tilt or now, please just invest the money. These minute variations of your financial plan will make so much less of a difference than the decision to just invest your money and getting compound interest to work in your favor.

So, how can you decide how to invest your money? Try these posts to help you get started!

Let’s move on to #2…

2. Invest in real estate

Ok, now that we have that out of the way and I’ve hopefully demonstrated why investing your money is so important, let’s talk about the best investment to beat inflation.

And the answer here is cash-flowing real estate. Why?

Well, when you own cash-flowing real estate, your cash flow comes from rents. Your tenants pay rent which covers your mortgage and all other expenses. The extra leftover cash then goes into your pockets.

And that rent that you charge will increase right along with inflation. And the increase should be very close to 1:1.

When you own stocks, the gains or dividends do not correlate or rise with inflation. Same with just about any other type of investment that you can imagine. And that is what makes real estate such a great inflation hedge.

So, how can you invest in real estate like this?

You can do so directly like Selenid and I do with our growing portfolio of cash flowing properties as shown here:

Or, you can invest passively in syndications. With syndications, the inflation indexed rent increased pass through to you as the investor. This usually happens with real estate funds as well.

It does not apply to REITs necessarily though since these are portfolios usually of class “A” secure properties that are not held for cash flow much of the time.

You can learn more here about syndications and real estate funds.

Here is an overall great primer on REI for doctors: A Real Estate Investing Guide for Physicians

3. Intentional spending

This is one strategy that I never hear people talking about in relation to inflation. But to me it seems so obvious and such a great way to avoid inflationary pitfalls.

Let’s talk this through step by step:

  • Inflation diminishes your purchasing power
  • So, when you buy things, you are paying more for the same product or service
  • Thus, each purchase results in a net loss of net worth
  • Therefore, by limiting our purchases to only those that are intentional, we preserve more of our net worth
  • And we can use the resultant savings to invest more
  • So that extra money is now being used to beat inflation and increase our net worth

It really makes a lot of sense to me.

Here’s a refresher on intentional spending…

Intentional spending is the concept that one is intentional with the money that she or he spends. Meaning that any purchase is well thought out and carries an intended purpose.

To round out this definition, we do need to define the opposite of intentional spending – unintentional spending.

Unintentional spending is what most of us (present company included) do most of the time. It’s a bit of a reflex. We spend out money without really focusing and even thinking about if what we spend it on is making us happy.

And research has shown that humans are incredibly bad at predicting what will make us happy – especially with our purchases.

And here is a simple formula to practice intentional spending…

If a purchase meets both of these criteria:

  • The purchase fits into your financial plan and
  • The joy derived from the purchase is >/= the dollar value of the purchase

…buy it!

If the purchase meets either of these criteria:

  • The purchase does not fit into your financial plan and
  • The joy derived from the purchase is < the dollar value of the purchase

…walk away!

The more you practice intentional spending in general, the more your wealth will accelerate. The greater the inflationary pressure at any time point, the more impact this strategy will have on your journey to financial freedom.

Let’s bottom line this

Inflation is bad. It’s one of the real deep risks to our wealth building and ability to retire and live on our own terms. So, you need to be aware of it and have a plan to combat it.

Like much of personal finance, which I think is beautiful, the answers are pretty straightforward and simple.

  1. Invest your money so it doesn’t lose purchasing power
  2. Consider investing in real estate to act as a unique inflation hedge (among many other advantages)
  3. Spend your money intentionally to limit inflations’ ability to siphon your money

Here are some other simple financial principles to help you on your road to financial well-being!

What do you think? Is inflation a big deal? How do you plan to beat inflation? Are you worried about it? Let us know in the comments below!

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    Jordan Frey MD, a plastic surgeon in Buffalo, NY, is one of the fastest-growing physician finance bloggers in the world. See how he went from financially clueless to increasing his net worth by $1M in 1 year and how you can do the same! Feel free to send Jordan a message at [email protected]

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