4 Ways the Upper Class Handles Inflation That the Middle Class Could Learn From

June 11, 2024 DINARRECAPS8

Jake Safane Mon, June 10, 2024

Inflation can be a double-edged sword. On one side, it can cut into your budget by raising the cost of essentials like housing, food, and transportation. But it can also be harnessed to grow your wealth, such as by increasing the interest you earn on your savings.

In some sense, being wealthy makes it easier to benefit from inflation. If you have $100 in savings, the difference between a 1% annual percentage yield (APY) on a savings account and a 5% APY is only $4. But if you have $100,000 saved, then the difference is $4,000.

Still, it’s better to earn that extra $4 on a $100 in savings than, say, lose money due to bank fees or pay interest when borrowing money if your balance turns negative. And over time, you can build up your savings and investments more to benefit from inflation further, much like many wealthy people do.

Specifically, consider the following four ways the upper class handles inflation that the middle class could learn from.

Wealthy people know the best money secrets. Learn how to copy them.

Staying Invested

While periods of inflation might stress you out and make you feel like you need to pull all of your money out of investments so that you have more cash on hand, that can be counterproductive. Instead, many wealthy people benefit from sticking with diversified investing.

“First off, they know how to stay invested in the right places, even when the economy is shaky. They spread their money across real estate, stocks, and commodities — assets that usually go up in value when prices rise,” said Jaqueline Schadeck, CEO at Golden Wealth Strategies and host of PBS show My Money Mentors.

Preparing for the Unexpected

Another way the upper class handles inflation is that they tend to be prepared for the unexpected.

“Inflation can sometimes be a surprise to many families, especially for bills that are paid yearly. For example, a lot of people have been caught off guard by how much insurance and property taxes have increased just in the last year,” said Patrick Marcinko, financial advisor at Bogart Wealth.

While it’s hard to know what those price increases will be, you can prepare by budgeting for emergencies and variability.

“Wealthy individuals ensure they have an emergency fund, or cash set aside, that can help them cover surprise expenses. This helps them avoid relying on debt when expenses turn out to be a lot more than they had expected,” said Marcinko.

Note, however, that where you keep your emergency fund matters.

“If inflation is higher than the interest rate on savings, the purchasing power of your money is eroding,” added Marcinko.

Some high-yield savings accounts can keep up with or exceed inflation. And if you have excess savings beyond what’s needed for an emergency fund — experts often suggest around 3-6 months of living expenses — then that could prompt you to keep setting aside money for investments that can potentially keep pace with or outgain inflation.