Insulation from the Inflation Nation

Financial Advisor, Wealth Management,
Posted by Matthew Grishman
· 28 November, 2022

We have battled inflation before. Success in the past has been the result of the two entities responsible for swinging the battle axes on our behalf working together as one unified front. As a 27-year financial professional in America, I am referring of course to the US Government, responsible for managing the fiscal side of policy making, and their battle partner, the Federal Reserve Bank, responsible for managing the monetary side of policy making.

In the mid-1990s, Fed Chairman Alan Greenspan, President Clinton, and House Speaker Newt Gingrich, were able to work together to the put the brakes on both fiscal and monetary policy to reduce the impact of an overheating economy. With six consecutive quarter point increases in the fed funds rate, and a slowdown in fiscal spending, our battle buddies in Washington were able to keep our economy on track and lead us into one of the greatest economic expansions of modern history.

Today we have a problem. The Federal Reserve, with its three primary levers for affecting the amount of money in circulation, (interest rates, treasury bond purchases, and banking reserve requirements) has slammed on the brakes with all three levers. Many have argued they are going too far too fast. Nonetheless, they are on a warpath of crushing the global demand of consumers by decreasing the amount of money supply in the United States.

The US Government on the other hand is not in synch with the Federal Reserve. While the Feds are in tightening mode, the US Government is behaving in the exact opposite fashion. In 2022 alone, nearly $4T in additional money above and beyond the normal federal budget has been authorized by the president and congress. From the Inflation Reduction Act, to the additional inflation-relief stimulus payments, the US Government continues to put more gasoline on the raging inflation fire.

Imagine for a moment what would happen if you tried to drive your car with your right foot on the gas pedal and your left foot on the brake – with both slammed to the floor simultaneously. You would likely go nowhere and eventually overheat or even seize your car’s engine.

This lack of alignment between the feds and the US government means taming inflation without tanking our economy remains an extraordinary challenge and a complete uncertainty of when (and if) this might be accomplished.

If you have been a stock investor, a homeowner, and someone who has lived below your means for the past decade, the reality is this inflation does not really affect you. The values of your stock portfolio and your real estate holdings have far outpaced inflation for the past decade (prior to this recent spike). You got way ahead of the curve, especially if you also spend less than you make.

However, if over the past decade you have not been a stock owner, or a homeowner, or if you spend everything you make, this current inflation is most likely devastating. There are a couple of evasive actions you can take to minimize the effect of inflation on your personal financial well-being.

First, take an inventory of your financial well-being. You cannot begin to make changes unless you know where you are. Track how much money you make. And compare that to how much money you spend. Get down to the details. Review every expense you have each month and place each expense into one of two categories: have-to and want-to.

For now, you may need to eliminate all the want-to’s. Dining out. Netflix. The drive thru latte on the way to work. Upgrading your smartphone to the latest model. Birthday gifts. For now, things like these must go.

Now look at your have-to’s. Do you have enough? If you still find yourself in a pinch, it may be time to look for additional ways to create income for yourself. Wages are up. Employers are starving for workers. You may have to get a second job. Or look for a new job altogether that pays more. You can always ask your current manager for a raise. There has never been a time I can remember in recent history where the job market was as fruitful as it is now. Thanks to the Great Resignation of the younger generation, protesting appalling wages and work conditions in so many industries, employers are responding by finally raising wages. Some big box retail chains in the US are so desperate for workers, they are offering six-figure pay checks for positions like middle management and truck drivers.

This is a very uncomfortable time for most people. But you have the power to make changes in your life to take back choice and control. Especially at a time when those responsible for helping us combat inflation are not in alignment the way their predecessors were, you must take your own actions to protect your own financial well-being. No one is coming to save you. It is up to you to get the job done. At least for now.

book cover of financial sobriety
Financial Sobriety: Rebuilding Your Relationship With Money One Step at a Time

Have you ever had challenges in your relationship with money? Have those challenges affected your relationship with the people in your life? Have those challenges affected how you feel about yourself?