Inflation is once again outrunning wage growth, and that’s creating a problem for anyone sitting on too much cash.
The inflation rate climbed 0.6% in April, pushing the annual rate up to 3.8%, a three-year high (1). And consumer prices rose 3.8% year over year while inflation-adjusted hourly wage growth came in at 3.6%, according to CNN (2). That means the purchasing power of many Americans is slipping, even as they continue to earn more on paper.
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For savers, the challenge can be even more frustrating. If your savings account is earning less than the rate of inflation, your money is effectively losing value over time.
That’s why some financial advisors are rethinking where they keep their own cash. While many still prioritize safety and liquidity, they’re increasingly looking for places that can help preserve purchasing power instead of letting savings become what one advisor called “dead money.”
Advisors are cutting expenses before touching their investments
Andrew Fincher, certified financial planner at VLP Financial Advisers, told MarketWatch (3), “Inflation has definitely changed the way many people think about day-to-day spending and long-term planning.”
Fincher said that his plan of attack amid the inflation squeeze was to take a hard look at day-to-day spending.
“I’ve become more focused on cash flow efficiency — reviewing recurring expenses more closely, being more deliberate about large purchases and keeping a higher emphasis on value rather than convenience spending,” he said.
Andrew Herzog, certified financial planner at the Watchman Group, told MarketWatch that he was shifting what classified as a family need to save money. He canceled the weed treatment and lawn fertilization service they’d been using, since “pursuing a perfect lawn is no longer viable.”
Nicholas Bunio, certified financial planner at Retirement Wealth Advisors, told MarketWatch that he has been thinking twice about bigger purchases — and it’s been an ongoing process. “Last year, I put off getting a new set of irons, and this year I’m putting off buying a new telescope, as I’m an amateur astronomer,” Bunio told Marketwatch.
Bunio and his family have also shifted how they view dining out. “We don’t go out on random days anymore. Just birthdays, anniversaries, and Mother’s Day,” Bunio said. “Cutting back saves a few thousand bucks.”
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