Inflation, the silent wealth eroder, is a topic that's been making headlines recently. It feels as though EVERYTHING is suddenly more expensive from the cost of eggs to purchasing (or even renting) a home - and that’s called inflation. With inflation on the rise, millennials (especially women), are increasingly concerned about preserving their hard-earned money and securing their financial futures.

It’s stressful AF to know our dollar doesn’t stretch as far as it used to, but it is possible to hedge against inflation. Today I’m going to delve into practical strategies tailored specifically for millennials to help protect your a$$ets against the erosive power of inflation.

What is Inflation?

Before we discuss strategies for combating inflation, let’s consider how it affects your finances.

LET'S TALK MONEY…as in the purchasing power of money and how inflation works. We’re goin’ back to ECON 101!

No, Amanda! I hardly passed that class in college! insert stressful flashback and lots of tears

Hey now, (hey now!), you know I'm going to make it simple for you! I won't cause you a headache like a 400-page textbook.

Inflation is an increase in prices, which, in turn, can be interpreted as a decline in purchasing power (the value of a dollar) over time. Simply put, your money can't buy as much stuff as it could before.

Deflation (the opposite of inflation) is a decrease in prices that can be translated to an increase in purchasing power (the value of a dollar) over time. In simple terms, your money can now buy more stuff than it could before.

How do they (the Bureau of Labor Statistics) figure out the inflation or deflation rate? Is it based on the cost of eggs going up or what?!

In a way, yes. Inflation, or purchasing power declines, can be calculated by reviewing the average price increase of a basket of certain goods and services over a specific period of time. This is called the consumer price index (CPI).

Okay, what's in the basket of goods? Apples and bananas?

It's not a literal basket that you take on a picnic. But things like food are included in the basket. But this basket of goods used to measure inflation is a REALLY BIG BASKET - we're talking roughly 94,000 items go in that basket! 

Okay, I get it - it's a big basket. But what's inside?

Here are eight major groups of items collected in the basket:

• Food and beverages (breakfast cereal, milk, coffee, chicken, wine, full-service meals, snacks)

• Housing (rent of primary residence, owners' equivalent rent, utilities, bedroom furniture)

• Apparel (men's shirts and sweaters, women's dresses, baby clothes, shoes, jewelry)

• Transportation (new vehicles, airline fares, gasoline, motor vehicle insurance)

• Medical care (prescription drugs, medical equipment and supplies, physicians' services, eyeglasses and eye care, hospital services)

• Recreation (televisions, toys, pets and pet products, sports equipment, park and museum admissions)

• Education and communication (college tuition, postage, telephone services, computer software and accessories)

• Other goods and services (tobacco and smoking products, haircuts and other personal services, funeral expenses)

The Bureau of Labor Statistics (BLS) gathers the prices of all the things in the basket monthly. The numbers are adjusted to ensure price changes don't reflect things unrelated to inflation, like an increase in the quality of the goods (like technology advances). In other words, there's a lot of math, and ‘ze BLS does it all.

So if the average price of our big basket of goods increases 2% one year, consumer inflation's annual rate is 2%. Keep in mind that the things inside the basket vary from country to country. 

A quick note: CPI and inflation are often used interchangeably, but CPI only measures consumer inflation.

WTF AMANDA! There are multiple types of inflation?!

Yes, I know! There are different types like production, employment, imports & exports, but for the most part - when you hear people talking about inflation, they are usually talking about consumer inflation rates. We'll save the other terms for another time 😎

Understanding the Impact of Inflation

“Stop buying avocado toast and overpriced lattes if you want to buy a house” they say. Let’s be real, brunch on Saturdays and your daily Starbucks isn’t what’s preventing us from being able to afford houses and all the other things boomers were able to so easily purchase.

Anytime Estimate analyzed data from the Federal Reserve Bank of St. Louis, the Zillow Home Value Index, and the U.S. Bureau of Labor Statistics to determine how inflation has affected housing and income.

They found that if home prices grew at the same rate as inflation over the last 50 years, the median home price today would be $177,788 – rather than $408,100. Home prices alone have increased 1,608% over the last 50 years, while inflation has increased 644%. In simple terms, the value of a dollar has significantly decreased since 1973, especially when it comes to buying a home. Meanwhile, our income hasn’t increased enough to compensate for these epic price increases.

This can be particularly worrisome for millennials who are trying to buy a home, save for retirement or even buy a carton of eggs at end of the day. All of this while living through multiple recessions, carrying the burden of student debt and all of the other fun sh*t we millennials have gotten to endure in our short(ish) lifetimes.

And that’s reality (unfortunately). BUT there are numerous ways we can reduce the impact of inflation on our money.

Ways to Mitigate Inflation

1. Keep your savings and emergency fund in an HYSA

A HYSA stands for: a high-yield savings account (i.e. like a regular savings account, but on steroids 💪). Typically, these accounts have interest rates ranging from 2% - 5% depending on inflation. Right now, in 2023, we are seeing many range from 4% - 5% since inflation is higher than normal. The national average for a traditional savings account is 0.45% according to the FDIC — many being way lower than that. Would you rather get 4% interest on your savings or 0.45%? I’ll pick option 1 over option 2 every day. We need to keep some cash on hand, but we need to keep it in the best place possible. As time goes on, the dollar loses it’s value (we just learned that) so a HYSA is a great way to help mitigate the affects of inflation on your hard earned money!

2. Invest for your long-term goals and retirement

You simply cannot save your way to wealth because, as we just talked about, inflation decreases the value of our dollar. We must invest today so compound interest can do its thanggg and grow your wealth for you, passively. And guess what? The US stock market has never not recovered. Millennials may have a lot of burdens other generations simply do not have to deal with, but one thing we have on our side is time. 

On average, the stock market has returned 10-11% a year (10.9% to be exact). However, to capitalize on the benefit of compound interest, we must leave our investments alone. 

If you’re worried about inflation eroding your investments, relax. Remember, when in doubt, zoom out. 

Some years are way higher, others are much lower, but over the last decade, 20 years, 30 years, and in the stock market's history - it levels out, and the average return is 10-11%. If you don’t know where to start on your investing journey - register for my free investing class where I’ll show you how to start investing with $1 and what exactly to buy. Or, if you want to really up your investment strategy and be prepared for retirement, check out my Investing and Retirement Course.

3. Revisit your budget and savings strategy

A solid financial plan is essential. Now is the time to reevaluate your budget to accommodate increasing living costs. Has rent gone up? What about utilities? And obviously, groceries and gas are likely to be much more expensive than the last time you checked in on that budget. 

Make the necessary adjustments to realign your budget with rising costs, and don’t forget to allocate a portion of your income to savings and investments. Need help keeping track of your budget? Check out my free budget tracker! You just input your expenses, and it does the math for you.

4. Invest in Your Financial Education

Expanding your financial knowledge continually is crucial to successfully navigating the complexities of investing and inflation. Since you’re reading this blog, chances are you are already invested in your financial education, but I’d be remiss if I didn’t remind you that my Money with Amanda courses are designed to give you everything you need to achieve financial peace of mind and the confidence to navigate complex financial times (you know, like runaway inflation). 

Equip yourself with the knowledge and strategies you need to thrive in today's economic landscape. Ready to start today? Join my FREE investing class party, where I’ll show you how to start investing with just $1 and diversify your portfolio to protect you from inflation!