People focus on financial planning in any economy. But it is especially difficult when you are battling high inflation and its aftermath. During such a difficult time, for many Americans, wealth building strategies might take a backseat as they focus on more urgent tasks.
But putting off the habit of creating wealth is never a good idea. Top advisors admit nobody can predict how long the current situation will last but it is important to seek out opportunities for building wealth during inflation.
We have compiled a few wealth building strategies to help you along, without tweaking your budgets too much.
Financial planning gives you a deep insight on your assets and liabilities, and helps you plan for the future. Wisely managing funds is the first step towards making key decisions.
1. Diversify Your Portfolio
It is easy to feel overwhelmed by rising inflation. Experts caution against letting your emotions drive your investment strategies.
One of the easiest ways to come out better is to diversify your portfolio after thoroughly studying the market. Stock markets tend to experience a downturn amidst high inflation. It is a good idea to consider your entire situation and invest in some high-value stocks, which may have fallen as a result of unstable economic conditions. Spread out your investments so that you are not overexposed to any one type of asset.
During inflation, take the time to understand it. At times, real estate prices go down during inflation. Although mortgages might be less flexible, it is still better than paying rent in the long-term.
If you put off creating wealth, it becomes that much harder to pick up the habit later on. Although the higher cost of living might feel suffocating, it is better to penny-pinch now than dealing with financial insecurity. Economic conditions often vary faced on multiple factors but a diverse portfolio will ensure that you have some rewards all the time. Financial planning frees you from stressing about money with regards to the unforeseen future.
2. Move cash on hand to high-yield accounts
We all keep money aside for emergencies. But storing them like goods just takes up space and reduces your returns. In building wealth, it is important to strategize and know how and when to move money around.
A high-yield savings account will help you earn more than what you would have had if you had just left it lying around. Also, a high-yield account offers better returns than your traditional savings account. If you ask around, you might even find institutions that ask for an initial deposit but charge no monthly maintenance fees and have no minimum balance requirements. In such cases, it is in your best interest to move all liquid cash and emergency savings to a high-yields account.
Inflation reduces the value of cash in hand. Hence, it is more prudent to consider putting it where you can multiply it.
3. Invest in retirement accounts
We are all responsible for ourselves. According to the How America Saves 2022 report compiled by Vanguard, on average, Americans have around $141,542 saved up for retirement. This means that the majority is likely to have less than this amount. The median 410(k) balance is around $35,345 per person.
Even when you are faced with a high inflation, investing in retirement accounts must be non-negotiable unless there are life threatening emergencies. It is a habit that will hold you in good stead. The long-term returns of investing will eventually help you outpace the effects of inflation. Creating wealth for your future self is especially important as it also provides a cushion for old age. Retirement accounts even offer tax deductions and ensure that you are paying less overall.
Compound interest and a savings habit is the secret to building wealth for the long-term. In case you are contributing to an employer-sponsored retirement plan, you must keep it going. Often employers match employee contributions up to a certain percent. Else, a traditional IRA or a Roth IRA is a good place to start.
Wealth building strategies differ from person to person based on their income and expenditure. However, creating wealth is more of a marathon than a sprint, wherein you must conserve your energy and have high discipline.
