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Resources/Planning Best Practices
JUNE 2024

Navigating Inflation: Smart Financial Planning for a Stable Future

Justin Hearty
Your financial plan will always be battling inflation, but you can implement a few precautions to ensure your plan continues to win!

Inflation is an unavoidable economic factor that affects our purchasing power and financial stability. As prices of goods and services rise, it’s essential to adapt our financial strategies to protect our wealth. This guide will help you navigate inflation and manage your expenses effectively.

What is Inflation and Why Does it Matter?

Inflation is the overall increase in prices over time, reducing the value of money. In simpler terms, your dollar doesn’t stretch as far as it used to. This impacts everyone, especially those on fixed incomes or those with significant savings in low-interest accounts.

Measured by the Consumer Price Index (CPI), inflation tracks the price change of a basket of goods and services such as food, housing, and healthcare. The Federal Reserve targets a 2% annual inflation rate, considering it healthy for the economy. Although inflation has exceeded the Fed’s target since 2021, the good news is that it has been gradually decreasing from its peak.

Keeping Your Plan on Track Amid Inflation

Given the changes in consumer spending and saving, and the challenges posed by inflation, it is important for consumers to plan their finances wisely and adapt to the changing economic environment. Here are some tips on how to do so:

Track Your Income and Expenses

Use budgeting tools to record your earnings and spending. Categorize expenses into fixed (e.g., rent, utilities) and variable costs (e.g., groceries, entertainment). Understanding your cash flow is the first step in managing finances. Regularly review your budget to identify areas where you might be overspending and make adjustments as necessary. This helps ensure that you are living within your means and can identify opportunities to save or invest more effectively. Additionally, keeping an eye on your cash flow can alert you to any potential financial issues early on, allowing you to address them before they become significant problems.

Adjusting Habits

If inflation outpaces your income, it’s essential to adjust your spending and saving habits accordingly. Focus on reducing variable expenses without compromising your quality of life. Consider prioritizing essential spending and looking for ways to streamline your budget. For example, review your subscriptions and memberships to see if there are any you no longer use or need.

On the flip side, if your income grows faster than inflation, it’s a good opportunity to increase your savings or invest in personal growth. Allocate additional income towards your savings goals, such as retirement funds, emergency savings, or educational expenses. You might also consider investing in professional development or skills training, which can enhance your earning potential in the long run.

Ensure Your Portfolio Aligns with Your Risk Tolerance

Safeguarding your purchasing power in the face of inflation means ensuring that your investment portfolio aligns with your current risk tolerance and financial goals. Regularly review your asset allocation to ensure that it not only reflects your risk tolerance and time horizon but can meet your financial objectives after factoring in inflation.

Do Not Forget About Your Need to Take Risk

We often talk about evaluating your willingness to take investment risk as well as your ability. These should be assessed regularly as life changes and economic conditions can affect both. But there is a third tier of the risk assessment that is less obvious – your need – and inflation can have a meaningful impact here.

A Case Study in Risk Need

Let’s imagine you are fairly well off and have a very low willingness to take on investment risk but have a high ability to take on risk. You have constructed a fixed income portfolio that gives you the returns and income you feel you need to retire comfortably. But now inflation kicks in. Suddenly the returns on your fixed income portfolio are growing more slowly than the cost of living. Your investment portfolio is not keeping up with inflation and your retirement plan is off track. You have a need to take more risk in your investments to earn a higher return.

What Exactly Do We Mean by Risk?

In investing, risk is often simplistically thought of as the volatility of your assets; how much they go up and down. Why would you want more risk? Generally, the goal with more risk is more return. In a very basic portfolio, you can get more risk by adding to equities and reduce risk by adding to high quality bonds. As such, the higher return potential in equities can help a portfolio combat inflation. Other alternative assets such as gold also can help.

Seek Professional Advice

Factoring inflation into your financial plan is not a trivial exercise. Consulting with a financial advisor can help you evaluate your risk tolerance, review your portfolio, and recommend adjustments to ensure that inflation does not derail your financial plan.


Inflation impacts everyone’s finances, but with careful planning, you can protect your purchasing power and achieve your financial goals. By tracking your finances, adjusting your habits and properly aligning your portfolio, you can navigate the challenges of inflation and maintain financial stability.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on total client assets of over $2 billion.



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