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How Inflation Can Eat Away At Your Purchasing Power

Jean Chatzky  |  May 18, 2021

Inflation — driven by surging used car prices and higher overall prices — is up. How should you respond?

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This Week In Your Wallet: The Anxiety Index

Have I mentioned I’m moving? As in packing-everything-up-to-leave-the-house-I’ve-lived-in-longer-than-any-other-in-my-whole-life moving?  I used to think I was good at moving. I may have even said it out loud. But I will admit to all of you (because we’re all friends, aren’t we?) that I’m an anxious mess. And, as my husband will tell you, I don’t get anxious.

Or maybe, it’s just the economy? Because as my pal Michelle Singletary laid out oh-so-nicely in a recent WaPo column, there’s a lot there to be anxious, even fearful, about — although she says in her headline, it’s not time to panic. What’s so worrisome? Not gas prices. The Colonial pipeline problem that produced lines at the pump has been resolved (although as sociologist Zeynep Tufeki writes in The Atlantic, ransomware attacks are likely to keep on coming).  

But stocks are down. At least they were again on Monday. The news is still dominated by trendy investments — crypto, SPACs and other things that are not (repeat not) working for many women.  And inflation — driven by surging used car prices and higher overall prices — is up. The two are closely connected, of course. “Stock market participants appear to be watching inflation closely, and recent indications of inflation flaring up have caused some of the recent volatility,” Morningstar’s Christine Benz explained to Singletary. “… Higher prices can put the brakes on growth… Corporate profits can get hurt if companies aren’t able to pass on their higher costs to consumers. [And] the Federal Reserve could raise interest rates, which increases borrowing costs.”

So, when you put all of that information into the soup, how do you decide how worried or anxious to be — and what to do in response to that worry or anxiety? That depends on where you are in your investment lifecycle. If you’re 10 years or more from retirement, it’s best to try to ignore the noise.  If you’re closer — or in retirement — it’s a tougher call. Inflation can eat away at your purchasing power and having to sell stocks at a loss to raise cash to live on can have a dampening impact on your long-term retirement overall (as people who were at that stage of life in 2008 know all too well). Better to look closely at your budget and see if you can trim your living costs or increase your income — even a bit — in order to ride out the storm.

Shelter From That Storm?

If you need some help with that… check out the next session of our Financial Fixx coaching program. We’re launching another class next week and there are just a few slots left. The people — women, men, couples — who’ve been through previous sessions have found ways to save more (hundreds to thousands), tweaked their investment strategies (for retirement, coming out of a divorce, for the just-getting-started stage), learned about why they are the way they are with money (from a leading behaviorist) and learned that, when it comes to their money, they can breathe a little easier. Plus (and I’m not just speaking for them here, I’m speaking for me), we’re having a really good time. So, if you’re game, join us! I’d love to see you there!

And Speaking Of The Jitters

Now that the fully vaxxed can move about — indoors and out — without masks, according to the CDC, is the return to the office imminent? And, even if it’s not happening until later in 2021 or 2022, how will you feel when you arrive?

According to Rachel Feinsteig’s reporting in the Wall Street Journal, in a word: Weird. Some people don’t want to be there. Others aren’t sure how to act once they are. After a year’s worth of autonomy (or more) having others around to watch you work (even if they couldn’t care less how much time you take for lunch or whatever) is admittedly kind of daunting.   

So, what’s the best way to get everyone back in gear? Feinsteig advises preserving autonomy as best you can, by offering flexible hours, and by judging performance on whether the work gets done on time — not by the clock. She suggests keeping the workflow level as the move back to the office occurs, not increasing it and even expecting that there might be some loss of productivity. As for that awkwardness — patience and some in-the-moment feedback are called for.

P.S.: If you’re still remote and planning from working here, there and everywhere, this story about tax apps that can help you keep track of your whereabouts for the purposes of Uncle Sam may be a lifesaver.

Too Hot To Handle?

My husband always says that he doesn’t regret big purchases. Trips. Cars. Homes. New research from Bankrate shows that 64% of millennial homeowners have at least one regret about their current home. Topping the list of regrets are higher-than-anticipated maintenance costs, bad locations and Goldilocks problems (homes that are either too big or too small). 

All of which gave me pause when I read about the concessions buyers are making in this hot-hot-hot housing market — including waiving appraisals and, more worrisome, inspections. As for when the frenzy will abate? A survey from Realtor.com suggests that an influx of potential sellers could level the playing field by bringing more supply on the market in the next 6 to 12 months. Whew.

Have a great week!

Jean

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