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Here’s how to protect your wallet

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A new report from Moody’s Analytics highlights the pain inflation inflicts on us, month after month – and drops a number that puts the harsh reality into perspective.

“The typical U.S. household must spend $445 more per month to purchase the same goods and services as a year ago,” the report says, based on an overall annual inflation rate of 8.2 percent. in September.

Many of us can’t afford the extra $445 a month and have had to make financial sacrifices this year, just hoping things don’t get worse.

It’s good to know that there are specific things you can do to protect your finances against inflation. Here are some proactive steps you can take to soften the blow.

Buy bonds I

treasury bonds
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Normally, investors focus on investing what they can afford – and sometimes more – in the stock market, which over the past century has averaged an annual return of around 10%. Investing in bonds to diversify is an afterthought for many, as they generally don’t offer similar returns. Their value is to be predictable.

Series I federal savings bonds, often referred to as I bonds, are more predictable than ever. But because of inflation, they also currently offer something much more appetizing: a 9.62% yield, risk-free.

But if you want that rate, you need to act now. It changes on November 1, like every six months, and experts believe it will fall below 6.5%.

Find out how to buy I bonds and more in our article “7 things to know before investing in I bonds”.

Plan around the most inflated categories

Woman looking at meat in grocery store
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You’ve probably noticed at the grocery store that prices haven’t gone up evenly on everything. Some items seemingly get more expensive every month, while others don’t really move. It is possible to identify the most inflated shopping categories and start planning meals with substitutions or cutbacks in mind.

To do this, just take a look at the inflation data that the federal government publishes each month in the Consumer Price Index. Or you can let the USDA do it for you – it publishes a monthly summary of changes and predicts price changes in several months.

Check out our story “10 Simple Grocery Swaps That Can Save You Big Money” for ideas.

Don’t close the inflation gap with credit cards

Woman with a lot of credit card debt
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It can be tempting to use credit cards to keep buying things the same way you’re used to, even if the prices keep jumping, jumping, jumping.

You can intuitively recognize that it’s not sustainable, but less obvious is how inflation drives up borrowing costs, at least when inflation prompts the Federal Reserve to raise the federal funds rate. When that happens — as the Fed has done several times so far this year — variable interest rates on most credit cards go up.

This means, in effect, that you are hit twice by inflation – first when you put inflated priced items on the card, and again if you don’t pay it back in full each month.

Credit reporting company Experian explains:

“Credit card issuers typically pass these higher interest rates on to their cardholders by increasing the annual percentage rates (APR) on their credit cards. APR increases translate to additional interest charges on all balances you carry from month to month.

Focus on paying off debt

Woman shopping online
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Since inflation makes debt even more expensive than usual, it pays more to work hard to pay it off. While it’s hard to make progress when your budget is already tight, stories like “How to Pay Off $10,000 in Debt Without Breaking a Sweat” can help. And fortunately there are other steps you can take to fight debt inflation.

One idea is to consider whether a balance transfer from one credit card to another could save money. A balance transfer is more than just rearranging the deck chairs on the Titanic – the 0% APR period, which can last up to 21 months on some cards, can be a life raft to keep you afloat until until the sea of ​​inflation calms down.

But if the thought of another credit card makes you seasick, a second option is to seek out a fixed rate loan with an interest rate below the APR of your current cards. This could consolidate several variable payments into one stable and manageable payment. However, you still need to do some math to make sure the upfront costs don’t outweigh the benefits.

In general, for those who can, it is best to postpone borrowing until interest rates come down.