Should you keep cash on hand as inflation rises? California adviser gives money-saving tips

Inflation is throttling wallets almost everywhere — with cost of living especially high in California. But there are still some ways you can get a grip on your cash.

Cost of food, fuel and other goods is rising as the country enters its highest inflationary period since 1981, with the cost of living up by 8.6% in the past year, the U.S. Bureau of Labor Statistics announced in June.

The brunt is hitting the middle class — households with an average income of $78,000 — due to spending on fuel and cars, according to a study from Bank of America.

“While we’re hopeful that inflation eventually moderates throughout the country, and more specifically here in California, we’ve seen very little signs that moderation has began to happen yet,” said Joseph Eschleman, president of Towerpoint Wealth, an independent wealth management firm in Sacramento.

In the meantime, there are several ways you may be able to protect your money during inflation. It’s important to note that not all money-saving tips will apply to you.

“The prescription for one person could very well be very different than the prescription for another person,” said Eschleman, who’s also a certified investment management analyst.

1. Contribute to your savings account

You can add some comfort to your financial portfolio by having a savings account.

With interest rates increasing to combat inflation, the yield or interest rate on your savings or checking account will go up as well, Eschleman said. Unlike the stock market which can decline and result in money loss, a savings account is not subject to that.

Saving money in these accounts will act as “bubble wrap,” he said, as it gives you insulation to absorb some financial losses during this turbulent economy.

The Bee reported in June that increases in bank account interest rates will be slow with 2% in sight only by the end of the year.

Currently in Sacramento, savings account interest rates from local banks and credit unions range from 0.10% to 1.65%, according to Deposit Accounts.

2. Invest carefully

Another place you can stash your money during this time is in the stock market. Eschleman said you should do so systematically.

This means not dropping all of your weekly income into your investment portfolio at once, and investing a certain amount at a time.

3. Keep some cash on hand

It’s a not a bad idea to keep “a couple $1,000s” in physical cash on hand, Eschleman said.

This can be used as a rainy day fund in case of emergencies.

But having anything more than that isn’t beneficial because you won’t earn interest from holding onto that cash physically.

“If inflation runs 6, 7, 8, 9% plus, the value of that stack of $100 bills is worth that much less because prices keep going up,” he said, “yet $100 is still $100.”

4. Avoid big purchases, if possible

Typically, it’s better to buy goods when prices are low. And right now, that’s hard to come by.

As of May, consumer prices for new cars are up by 12.6% and used cars and trucks have increased 16.1% in the past year.

Unless you need a car, it’s best to not make an auto purchase right now, Eschleman said. He also advises avoiding home renovations, if possible, since supply chain slowdowns have resulted in the cost of supplies, steal, copper and other materials to shoot through the roof.

This story was originally published June 24, 2022 at 5:00 AM.