The Inflation Rollercoaster: How Californians Can Navigate Rising Prices
Practical Tips and Strategies for Californians to Manage Their Finances
Inflation is an economic reality that affects everyone. It is the rate at which prices for goods and services rise over time, leading to a decrease in the purchasing power of money. Like all Americans, Californians must learn to navigate inflation and manage their finances accordingly. In this essay, we will discuss practical tips and strategies for Californians to manage their finances during times of inflation. We will begin by understanding inflation and its impact on the economy. Then, we will move on to practical tips for managing finances during times of inflation and strategies for long-term financial planning.
To manage finances during inflation, it is essential to understand what inflation is and how it affects the economy. Inflation is classified into three types: demand-pull, cost-push, and built-in inflation. Demand-pull inflation occurs when demand for goods and services exceeds supply, increasing prices. Cost-push inflation occurs when the cost of production increases, leading to an increase in prices. Built-in inflation occurs when workers expect prices to rise and demand higher wages, increasing prices. In California, the Consumer Price Index (CPI) is used to measure inflation. It is calculated by the California Department of Finance as a population-weighted average of the Bureau of Labor Statistics (BLS) published local area prices. Understanding inflation is the first step in managing finances during times of inflation. [1] [2]
Practical tips can be followed to manage finances during inflation. Californians should look at their household budget and reduce expenses where possible. The right money moves can be made as prices rise. A widely diversified portfolio can help maintain value, including commodities, bonds, and inflation-protected investments. TIPS (Treasury Inflation-Protected Securities) can help balance out fixed-income or bond portfolios since they are indexed to inflation. TIPS are bonds issued by the government, and the principal and interest payments are adjusted for inflation. According to Diahann Lassus, a CFP and managing principal of Lassus Wherley, “Adding TIPS can help balance out your fixed income or bond portfolio since they’re indexed to inflation.” [3] [4] [5]
Long-term financial planning is essential to manage finances during inflation. Factors such as time horizon, retirement spending needs, and after-tax investment returns should be considered when planning for retirement. California’s cost of living is higher than the national average, and long-term financial planning is crucial to maintain financial stability. Long-term financial planning should be the starting point for capital planning, developing operating budgets, estimating revenue, and other planning processes. Failing to plan for unexpected expenses can imperil your ability to reach near- and long-term financial goals. Californians should consider having an emergency fund, insurance, and a retirement plan to stay prepared. [6] [7] [8]
Inflation is an unavoidable economic reality that affects everyone. Californians must learn to navigate inflation and manage their finances accordingly.
Source:
- Inflation: What It Is, How It Can Be Controlled, and Extreme …. (n.d.) Retrieved December 14, 2023, from www.investopedia.com/terms/i/inflation.asp
- Inflation — California Department of Finance — CA.gov. (n.d.) Retrieved December 14, 2023, from dof.ca.gov
- 8 Ways To Budget During Inflation. (n.d.) Retrieved December 14, 2023, from www.forbes.com
- How to Profit From Inflation. (n.d.) Retrieved December 14, 2023, from www.investopedia.com
- Inflation Surge: Where To Put Your Money According …. (n.d.) Retrieved December 14, 2023, from www.cnbc.com
- 5 Retirement Planning Steps to Take. (n.d.) Retrieved December 14, 2023, from www.investopedia.com
- Long-Term Financial Planning. (n.d.) Retrieved December 14, 2023, from www.gfoa.org/materials/long-term-financial-planning
- 3 Tips to Help You Plan for Unexpected Expenses. (n.d.) Retrieved December 14, 2023, from www.synchronybank.com/blog/preparing-for-unexpected-events/
