You can adjust your spending and saving strategies to help protect the value of your cash during inflationary times.
Inflation erodes your spending power: prices rise and your money buys less. While inflation may eventually prompt higher interest rates on savings or loans, your strategy needs to evolve so cash doesn’t lose value merely sitting in low‑yield accounts. As Walter Russell, CEO of Russell and Company, says, “Inflation is a time for investors and savers to reevaluate their strategies.”
Below are expert‑recommended steps to help you save more effectively during inflation.
1. Look for High‑Yield Interest Rates
Banks may offer above‑average rates on savings, checking or CDs when inflation rises. While yields may still trail inflation, they beat holding cash at home—or in traditional accounts. Some institutions now offer APYs of 1.00 % or higher.
2. Find Ways to Keep Costs Low
Review your budget and cut non‑essential expenses. Cancel unused subscriptions, reduce dining out, limit convenience services, or lower transportation costs. Financial blogger Amanda Claypool dramatically lowered expenses by biking instead of driving, eating inexpensive staples like rice and beans, and even downsizing her housing. While you don’t need to go that far, smaller changes can add up.
3. Consider Investing or Buying Bonds for Long‑Term Savings
Keep short‑term funds (like your emergency fund) accessible in a savings account. For money you don’t need for at least a year, look into investments or U.S. Treasury bonds. Walter Russell advocates TreasuryDirect Series I savings bonds, which recently offered over 7 % interest for one‑year terms. These can help your money match or exceed inflation.
4. Avoid Holding Excess Cash
Certified public accountant Tony Molina warns that hoarding too much cash can cost you: inflation will erode its purchasing power over time. He recommends investing money that you won’t use within three to five years.
5. Diversify Your Investments to Hedge Inflation
Consider including assets that tend to keep pace with inflation:
- Real assets, such as real estate or commodities like gold, which may preserve value.
- Stocks, especially companies with steady earnings and low debt.
- Treasury Inflation‑Protected Securities (TIPS) or I Bonds, which are indexed to CPI to maintain purchasing power.
6. Trade Variable‑Rate Debt for Fixed‑Rate Terms
Variable debt like adjustable‑rate mortgages or credit cards can get costlier with inflation. Refinancing into fixed‑rate loans (if you have good credit) can provide stable payments. However, avoid taking on new fixed‑payment obligations if you need cash flow flexibility.
7. Review Spending Behaviors and Shop Smart
- Trim discretionary spending—even a 5 % cut on travel or entertainment helps.
- Don’t put off durable goods purchases, which may only get more expensive.
- Use generic brands, coupons, and loyalty programs to save on essentials. Renegotiate recurring bills like cell, cable or insurance—often just a phone call can deliver savings.
Example in Practice
- Amanda Claypool pared costs by changing her lifestyle—biking, minimizing food costs, and simplifying housing.
- Many consumers now follow a 50/30/20 budget rule (50 % needs, 30 % wants, 20 % savings/debt), enabling them to allocate saving or debt reduction.
Why This Matters—and What to Aim For
- Consumer savings rates in 2025 rose, as people embrace what’s now being called “revenge saving.” Personal savings hit ~4.9 %, up from 4.1 % earlier in the year.
- Financial planners suggest building an emergency fund covering 6–12 months’ expenses, especially in uncertain economic conditions.
- Automating your savings—such as increasing contributions by 1 % periodically—and setting up dedicated sub‑accounts or “sinking funds” can help maintain consistency.
Summary and Action Steps
✔️ Short‑term (0‑12 months):
- Move excess cash into high‑yield savings or short‑term CDs.
- Eliminate unnecessary expenses: subscriptions, dining, convenience services.
- Negotiate recurring bills and review fees.
✔️ Medium‑term (1+ year):
- Invest excess beyond your emergency fund in low‑cost, diversified vehicles.
- Consider Treasury I Bonds or TIPS as inflation‑protected products.
- Refinance variable‑rate debt to fixed terms if appropriate.
✔️ Ongoing:
- Track your spending and aim for a 50/30/20 or similar budget.
- Automate savings and build separate buckets for each goal.
- Review your plan at least annually, adjusting for interest rate and inflation changes.
Final Thought
Inflation presents real challenges, but it also offers opportunities—like elevated bank rates and inflation‑linked bonds. By adjusting where you save, how you spend, and how your investments are allocated, you can preserve the value of your money and even grow it over time.
Feel free to ask if you’d like help adapting these ideas to your specific cash flow or savings goals.
This article is inspired here.