How to Save and Invest to Protect Your Financial Health When Inflation Is High

How are your finances looking these days? Inflation is high—historically high—making it tough for individuals and families to manage their financial health and wellbeing. If you are looking for tips on how to save and invest during these tumultuous times, then read on. The tips below can help you realign your income and expenses, rebuild your emergency fund, and earn tax-sheltered income for retirement and health care costs.

6 Tips on How to Save and Invest When Inflation Is High

1. Analyze your income and expenses to create a new budget.

A clear picture of your income and expenses can significantly impact your financial health, especially when inflation is high. The only way to gain true clarity is to make a list of your expenses, compare that to your income, and Stacks of coins on a table in front of a man who is using a calculator to create a budget to determine how to save and invest during high inflation.create a new budget accordingly.

When you evaluate your expenses, divide them into categories of your needs versus wants.

Your “needs” list includes your rent or mortgage payment, utilities, car expense, groceries, gas, medication, etc. These are the things you must have to meet your basic living requirements.

Items that land on your “wants” list are a bit more fluid. Everyone has things they want in life, but if past expenses on these incidentals drained your finances, you can capture extra cash flow by not indulging yourself so often for the greater good of reaching your primary financial health goals.

2. Factor inflation into your budget.

This is critical, especially since the cost of living has been rising quickly the past few months. Things like groceries, cars, gas are more expensive than they were a few years ago, and so are rent costs and the prices of homes. And let’s not forget today’s sky-high interest rates. Due to this rise in inflation, the Social Security Administration announced an 8.7 percent increase in 2023 to its cost-of-living adjustment (COLA) for recipients. That percentage is a good guideline to factor inflation rates into your own budget moving forward.

3. Write down your goals and finalize your budget to help you reach them.

Goals are important, and you may have many. Some popular goals include:

    • Saving for retirement
    • Establishing an emergency fund
    • Paying for current and future health care costs
    • Starting a college fund for your children
    • Traveling across America or overseas
    • Retiring in your dream home
    • Retiring early

Now that you’ve got an idea of your goals, look at your income/expenses. Especially the “needs” versus “wants” list. Define ways you can cut corners to capture extra income to help you begin saving money to put towards your goals. Consider taking actions that can help you save even more, such as downsizing your current home, not dining out as much, and even foregoing a vacation. Every change you make, large or small, can help impact your bottom line and jump-start your plan on how to save and invest for today and your future.

4. Max out your retirement plan’s annual contribution limits.

Whether you have a traditional or Roth IRA, a 401(k) or another employer-sponsored plan, you should budget to make the maximum contributions the IRS allows each year. This is especially beneficial if your employer matches your 401(k) contributions. The more money you sock away in a retirement plan, the more capital that plan can invest to earn tax-sheltered income for your retirement. Additionally, if you begin saving early in life, compound interest earned over time can be significant.

The IRS released higher contribution limits in 2023 for retirement plans and health savings accounts (HSAs), paving the way for you to save more than you could before.

5. Open a health savings account (HSA) and max out these contributions, too.

Health savings accounts have more benefits than many people realize. Contributions are made with pre-tax dollars, which you can deduct on your tax return. Not only can you use these funds to pay for qualified medical expenses now—they’ll also be available for you in retirement. The funds carry over every year for the life of your account. This is powerful, because if your HSA amasses considerable wealth, when you retire you can cover qualified costs without dipping into your retirement income. Plus, once you turn 65, you can take penalty-free withdrawals to use for anything (not just health care expenses).

6. Open a self-directed IRA and invest in alternative assets.

Self-directed IRAs offer a unique and powerful way to maximize your retirement income-earning potential. Unlike conventional IRAs, self-directed plans allow account owners to:

    • Invest in alternative assets instead of stocks bonds
    • Choose investments you personally know and understand

Insider tip: You can self-direct Roth IRAs (tax-free earnings) and traditional IRAs (tax-deferred), as well as education savings accounts (ESAs) and health savings accounts (HSAs). Self-directed SEP and SIMPLE IRAs, along with solo 401(k)s, are popular with small business owners (even if your business is a side-gig). And, if you inherit an IRA, you can self-direct that account, too.

A short list of alternative investments includes real estate, private lending, cryptocurrency, gold, and private equity. But there is a vast pool of alternative assets to the stock market you can invest in with a self-directed plan.

Final Thoughts on Saving and Investing from Advanta IRA

The above are just a few ways you can improve your financial health and learn how to save and invest in any economic environment. With the current state of the US and global economy, now is a good time to reevaluate your current situation and develop a new budgeting strategy. Schedule a meeting with your financial advisor to help you navigate some of the new tax laws on the horizon, as well as additional financial moves for your unique situation.

If you have questions about alternative investments and the advantages of self-directed retirement and other savings plans, please contact Advanta IRA today.

Additional reading about how to save and invest in today’s economy:

Guide to Set Up an IRA and Invest in Real Estate

Rehab Investments vs Rentals in an IRA During Rising Interest Rates and Inflation

The Simple Strategy of Investments in a Gold IRA

This article was initially published on August 27, 2021 and has been updated.

About Scott Maurer

Scott Maurer, Vice President of Sales for Advanta IRA, is a recognized expert in the field of self-directed IRAs. With a law degree from the University of Florida and as a designated Certified IRA Services Professional (CISP), Scott’s keen understanding of rules and regulations fuels his passion to educate others on the power of investing in alternative assets using self-directed IRAs. Scott is a frequent guest on retirement and investing webinars and podcasts, and he has shown thousands of individuals how to achieve financial freedom by teaching them how to use their retirement funds to invest in private placements, real estate, private lending, and more. Throughout his two decades in the industry, he has watched numerous unique investments unfold, giving him great perspective of what is possible when people take control of their retirement funds and investing decisions.