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The way to Keep Forward of Rising Inflation – San Francisco Bay Instances

By Brandon Miller, CFP–

Nothing says we’re back from pandemic isolation like … inflatables. Given the spread of the contagion, it’s not surprising that families have avoided jumping in enclosed spaces like the plague. But the other day my neighbour’s garden was suddenly filled with a beautiful pink-purple princess castle. And it dawned on me that the owner of the inflatable business probably thinks inflation is a good thing.

Treasury Secretary Janet Yellen shares this view. She thinks a little bit of inflation – the way prices go up so your money buys less – might be just what we need now. But why is it better to pay $ 10.30 tomorrow for the 12-pack that only costs you $ 10 today?

The prevailing wisdom is that moderate inflation is required to stimulate consumption, which is the driving force behind economic growth. Prices are rising steadily in order to avoid a standstill or shrinkage of an economy. In theory, higher prices allow employers to pay higher wages, although that extra profit too often seems to be sucked up should it trickle down. Rising prices over time also discourage consumers from delaying purchases to await lower prices. Without the constant consumption of goods and services, production would shrink, layoffs would rampant and the economy would plunge into a deep slump.

With this alternative, paying a little more for what we want and need seems like a better option.

Secretary of State Yellen expects inflation to stay around 3% for the remainder of this year, one percentage point higher than what the Fed is aiming for annually. Politicians say this is evidence of a brisk – or overheated – economy, depending on which side of the aisle they encounter.

The year-on-year comparison is distorted by the pandemic. As a result of this move, gas and flight costs have skyrocketed – by 56% and 24% respectively – but mainly because no one left their home in the past year. On the flip side, food prices averaged 1% higher between May 2020 and May 2021, according to the US Bureau of Labor Statistics.

Foreign Minister Yellen believes the higher numbers are due to “temporary factors”. What she means here is basic supply and demand. When we come back to life, there will be a backlog of goods and services. Manufacturers haven’t quite caught up, causing temporary bottlenecks. High demand coupled with low supply leads to higher prices. Once factories and supply chains are up to date, prices should come down as supply meets demand. The big question is how long will this take?

Whatever the cause or duration, the following suggestions can help you stay one step ahead of inflation in your financial life.

Borrow now. Debtors win when inflation rises because they pay off loans with money that is less valuable than what they borrowed. With interest rates low and it may not last long, now may be the time to buy a house, or a boat, or whatever you dreamed of during the pandemic.

Secure long-term agreements. Today’s rent or mortgage payments can appear as starvation wages when interest rates rise steadily, so that securing a multi-year rental agreement or a 30-year mortgage could make sense.

Redeem bonus points. These will be worth a lot less when the prices are higher, so stop hoarding them. Also, the terms and conditions of the credit card, airline, etc. issuing the points can change at any time. So enjoy your rewards now while they buy you something.

Take inflation into account in your financial planning. For example, let’s say you need to retire at $ 10,000 per month based on today’s dollars. Over the years, inflation will reduce the amount that can be bought for $ 10,000. In your later years, you may need $ 12,000 to keep up. Inflation planning can better prepare you for what lies ahead.

Look at longevity annuities. With this additional retirement investment, you put a large amount of money in an account with the agreement that you will receive a guaranteed income for life. In contrast to regular pensions, these are only paid out from the age of 80 in order to prevent you from surviving your savings.

With a little foresight and planning, there is no need to fear inflation. In fact, the kids jumping around in my neighbor’s backyard found that it can help them get the party started. Perhaps a little bit of financial inflation will help boost the economy and wages in the coming months, which gives us all something to jump around in.

Brio does not provide tax or legal advice, and nothing contained in these materials is to be construed as such. The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or any particular security. It only serves to educate people about the financial industry. To determine which investments might be right for you, consult your financial advisor before investing. Past performance discussed during this program is not a guarantee of future results. All benchmark indices are not managed and cannot be invested directly. As always, please remember that investing involves risk and the potential for loss of capital. Please seek advice from a licensed specialist.

Brio Financial Group is a registered investment advisor. The SEC registration does not constitute endorsement of Brio by the SEC, nor does it indicate that Brio has achieved any particular level of skill or ability. Advisory services are only offered to clients or prospective clients for whom Brio Financial Group and its agents are properly licensed or exempted from approval. Brio Financial Group is not allowed to provide advice unless there is a customer service agreement.

Brandon Miller, CFP®, is a financial advisor with Brio Financial Group in San Francisco specializing in helping LGBT people and families plan and achieve their financial goals.

Published on July 15, 2021

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