FA 100

Inflation is probably taking a bite out of your budget. These tips can help with that

Key Points
  • Government data shows inflation is setting records.
  • That probably comes as no surprise to consumers contending with higher prices and product shortages.
  • Experts say there are ways you can manage your money and spend strategically that can help limit how much you are affected.
d3sign | Moment | Getty Images

American consumers are already suffering sticker shock from prices on grocery store shelves and at the gas pump.

Now, data for October shows inflation was even higher last month than some experts had projected. The Consumer Price Index, which measures the average change in prices over time, climbed 6.2% from one year ago, the highest since 1990.

Much of that gain was due to rising food and energy prices. Yet core inflation, which excludes those drivers, shot up 4.6% in the fastest climb since 1991.

There may not be an immediate easy fix to higher prices and supply chain issues that are making it more difficult to find certain items.

"I have a tremendous amount of confidence in American ingenuity and business to solve these problems eventually, so I think this will abate," said Carl Zuckerberg, principal and chief investment strategist at RZH Advisors, an independent wealth management firm that was number 46 on CNBC's Financial Advisor 100 list for 2021.

"But it has a potential to still be fairly painful for a while, mostly because a number of the issues revolve around overseas manufacturing," he said.

Experts say there are steps people can take to try to stay ahead of risings costs.

Stay invested in equities

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How investors can adjust their investment portfolios to navigate inflation

The primary way to offset inflation is to own equities, according to Mark Hebner, president and founder of Index Fund Advisors, a fee only advisory and wealth management firm that was number 72 on this year's FA 100 list.

The reason for that is that stocks have a strong track record. Over more than 90 years, equities have had returns in excess of inflation, he said.

The key to success is to design an all-weather portfolio for all market conditions and then to rebalance when necessary, Hebner said. In other words, scary headlines about rising costs and supply chain woes should not throw you off course and prompt you to make reactionary trades.

What's more, it's important to remember that that outlook is not all doom and gloom.

Current estimates, including from the Federal Reserve of St. Louis, point to a 3% inflation rate over the next five years. That is around the inflation rate we have experienced over the last 94 years, he said.

"I think that the fears about inflation are often exaggerated," Hebner said.

Adjust your income expectations

Ideally, your income should go up at the same pace as inflation. If it does not, you may have to pare back your spending.

That goes particularly for retirees, who anticipate living off a certain portion of their portfolio. An annual withdrawal strategy of around 6% should enable people to keep up with inflation, due to expected increases in their portfolios' value, Hebner said.

But if retirees find it difficult to pay for certain items, they should pare back their spending, he said. Variable expenses, like entertainment, would be a great place to start.

Those who are collecting Social Security benefits will see a 5.9% bump to their monthly checks next year, due to an annual cost-of-living adjustment that will be the highest it's been in four decades.

Meanwhile, workers who are still employed should hope to see at least a 3% annual salary bump in order to keep up with rising costs.

Negotiate your debts

A home, available for sale, is shown on August 12, 2021 in Houston, Texas.
Brandon Bell | Getty Images

A great way to combat rising prices is to fix your costs, Zuckerberg said.

To that end, Zuckerberg's team at RZH Advisors has urged clients to refinance their mortgages at 15- and 30-year fixed rates.

"Having a fixed cost mortgage with a fixed interest rate means that cost in your life, which is normally one of the larger costs in someone's budget, is not going to go up with inflation," Zuckerberg said.

In addition, it's important to refinance or pay off other debts you may have.

When buying new items, pay attention to deals that offer 0% interest for extended periods like 39 months for items like mattresses or home exercise equipment.

"If you think inflation is going to be high, that means every day one dollar is worth less," Zuckerberg said.

"If you can pay with future discounted dollars, that's a home run in an inflationary environment," he said.

Rethink your gas consumption

While it can be tough to find new and used cars to purchase, certain electric vehicles are fully stocked. What's more, that can help you sever your ties to gas prices altogether, Zuckerberg said.

If you're not planning to buy a car now, you can still control how much you spend on gas by downloading an app to find the lowest prices in your area, he said.

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Bundle your purchases

As prices for cars and home construction rise, one way to potentially get significant discounts on those big ticket purchases is by bundling them.

Zuckerberg had clients who were doing home renovations at the same time as a neighbor and used the same contractor. The contractor was able to do the work on both properties, and only had to bring in equipment once. Those savings were passed on to neighbors in the form of a 15% to 20% discount on a six-figure job.

The same concept works for buying cars. If you go to a dealership with a friend and each purchase separate cars, you may be able to negotiate a bigger discount than if you went alone, he said.

"We've been recommending that to our clients, and it works on all levels," Zuckerberg said. "It's a win-win."

As we look ahead to 2022, CNBC's Financial Advisor Summit will bring together forward-thinking advisors like the FA 100 firms to hear from industry heavyweights about the state of the markets and share innovative ways to address the needs of their clients. Register to join us December 8th.