Personal Finance

As inflation hits another record, here are 5 steps you can take to protect your money

Key Points
  • The core Personal Consumption Expenditures Price Index, an inflation measure closely watched by the Federal Reserve, climbed to a new high in December.
  • The 4.9% gain versus the prior year represents the biggest jump since September 1983.
  • Consumers who have seen day-to-day prices soar probably aren't surprised. But there are steps you can take to help manage the bite from your budget.
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An inflation gauge closely watched by the Federal Reserve has reached a record high.

The core Personal Consumption Expenditures Price Index climbed 4.9% from a year ago in December.

The index measures the prices people pay in the U.S. for goods and services, excluding food and energy, which tend to have more volatile prices.

The 4.9% gain represents the biggest jump since September 1983, in yet another inflation record.

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Consumers who face day-to-day price increases in recent months likely won't be surprised by that news.

Inflation — which some experts had initially promised would be transitory — has lasted longer than many had hoped.

There may not be an immediate fix as pandemic conditions contribute to higher prices and supply chain issues.

December core PCE prices rise 4.9%, biggest gain since September 1983
December core PCE prices rise 4.9%, biggest gain since September 1983

But experts say there are steps people can take to try to stay ahead of rising costs.

1. Stay invested in equities

Even amid the recent market rout, the primary way to offset inflation is to own equities, according to Mark Hebner, president and founder of Index Fund Advisors, an Irvine, California, fee-only advisory and wealth management firm that was No. 72 on's FA 100 list for 2021.

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.

2. Adjust your spending

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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 received a 5.9% bump to their monthly checks this year, due to an annual cost-of-living adjustment that is 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.

3. Negotiate your debts

A great way to combat rising prices is to fix your costs, said Carl Zuckerberg, principal and chief investment strategist at RZH Advisors, an independent wealth management firm in Stamford, Connecticut, that was No. 46 on CNBC's Financial Advisor 100 list for 2021.

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.

4. Rethink your gas consumption

A gas station in the Morningside Heights neighborhood of New York City on Jan. 12, 2022.
Timothy A. Clary | AFP | Getty Images

While it can be tough to find new and used cars to purchase, certain electric vehicles are fully stocked at dealerships. 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.

5. 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."