I asked financial planners how to protect my cash during inflation, and got 5 smart pieces of advice (2024)

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• I've been worried about how inflation will affect my money, so I asked financial planners.
• They said to start by checking up on my money more often to make spending cuts as needed.
• They also said to avoid keeping excess cash right now, and get yourself out of high-interest debt.

One of the financial buzzwords that seems to enter the majority of my conversations these days is inflation. It pops up at dinner when restaurants share that they've had to raise their menu prices (for many reasons, including inflation) and it's evident when you browse the prices at grocery stores, gas stations, and even retailers.

With all the talk of inflation, I started wondering if this is something I should account for with my own personal finances and investments. If so, what should I do and how should I start?

"Inflation is definitely something that needs to be taken into account when planning. It's referred to as a stealth tax — it erodes the value of your assets, principal, and purchasing power," says financial planner Eric Brotman. "The part that can be most difficult is that we haven't seen inflation like we're seeing now for many years, so we have generations who have never experienced it."

I decided to find financial advisors who can give me their advice on what to do with my cash.

1. Check on your finances more often

I make it a point to eyeball my finances on a weekly basis, but financial planner Marigny deMauriac recommends keeping a close eye on your budgeting app since inflation can impact your finances at different times.

"Not all items experience inflation at the same rates. It's vital to review cash flow routinely," says deMauriac. "Set a date with yourself once a month and add it to your calendar. You want to know what money is coming in and where it is going out. For example, gas has been more expensive as of late. If you're spending more money on gas to commute into work, you may need to reduce where you are spending in other areas in order to prevent overspending. Small changes do add up over time, even though it doesn't feel immediately gratifying."

2. Review cash holdings

I have a lot of cash in a high-yield savings account, which Brotman says is a bad call. He says it's important to recognize that inflation is preventing that cash from growing.

"Cash is falling behind the cost of all goods and services so you're basically getting a negative return on your cash," says Brotman. "Cash is no longer a useful asset to hold for accumulation. You should still hold cash for emergencies and liquidity, but it is going to continue to underperform. It may be time to diversify excess cash into another asset class."

3. Get out of debt

One of the many ways inflation can hurt a person's finances is how it impacts their debt. Financial planner Jay Zigmont says it's important for people to focus on getting out of debt during this time.

"The combination of inflation and rising interest rates mean that debt will be taking a much bigger bite out of most people," says Zigmont. He says average credit card interest rates are expected to rise. "Add the increased interest to higher prices for everything," he continues, "and you should expect both your balances and minimum monthly payments to go up."

Zigmont recommends locking your credit cards so you don't take on more debt, and holding off on taking out new loans. "If you are going to make progress getting out of debt, you have to stop adding to it," says Zigmont. "Then set a goal to pay off your debt as soon as possible."

4. Try to increase your income

If inflation is drastically impacting your lifestyle or budget, deMauriac recommends not only reviewing your cash flow but trying to find ways to increase your income to afford the rising cost of goods and services.

"That may mean taking on a second part-time role, having a side hustle, upskilling and switching careers, negotiating for a promotion or pay raise, or investigating a new job opportunity," says deMauriac. She recommends business owners take a look at their service offerings and billing structures to find new opportunities to generate income.

5. Reconsider your bond investments

When you're checking up on your investment portfolio, Haley Tolitsky, a financial planner, says to pay attention to your fixed income (including bonds, cash, and CDs) since those are most affected by periods of high inflation.

"When interest rates rise, bond prices decline due to the fact that new bonds will be issued offering higher interest payments," says Tolitsky. "If you have bonds in your investment portfolio, make sure you aren't invested too conservatively for your time horizon, and consider short- to intermediate-term bonds instead of long-term, which are more sensitive to interest rate changes. Stocks, on the other hand, tend to far outpace inflation over the long-term, although they may face short-term volatility with changes in the economy."

This article was originally published in April 2022.