The Only 2 Ways to Beat Inflation

Run for your lives.

Run for your lives.

There’s a saying that goes, “If you’re not going forward, you’re going backwards.”  If you take it literally,it makes no sense at all.  I mean if you’re not going forward, you’re just staying still in one spot right?  So chill out what’s the problem!?  The problem is, that while you may be relaxing in your little spot, the REST OF THE WORLD is going forward.  Meaning that if you stay in your little spot, you are moving backwards relative to everyone else.

So now that this little lesson in perspective is over, how does this apply to your financial life?  It’s because inflation will make your money worth less (and eventually worthless) year after year if you don’t do something about it.  For some reason I think of inflation as a big, horrible beast.  This beast that just devours everything in its path with no regard for the carnage it leaves in its wake.  I would like to eventually convince you all to think of it in this way too, because if you’re not paying attention to it, inflation will eat you alive.

(Very) Short history lesson

In order to learn how to beat inflation, we have to know a little bit about it.  It’s a very deep topic with many economic theories pertaining to it, but in general, inflation is an increase in the price of goods and services over a period of time.  This is usually because of the diluting effect of pumping extra money into the economy.  More money available means that you need more money to purchase the same product over time.  This means your purchasing power decreases over time.

The long term average inflation rate in the US from 1913-2013 is 3.22%.  Let’s round it to 3% and assume this is the rate of inflation for every year for the rest of time so I can do math in my head.  That means if an apple cost $1, next year it will cost $1.03.  And it will keep going up 3% every year from there.  This also means that if you make $10,000 in one year, you will have to make $10,300 the next year just to maintain your standard of living.  This is why if you’re not moving forward, you’re actually moving backwards.

So how do we combat this beast that will destroy our finances?  There are only two ways available:  Make more money, or spend less money.

Making more money

This seems like an obvious bit of advice but there are many ways to diversify this.  Here are some down and dirty ways to beat the inflation monster by making more money:

Work more.  A no-brainer here.  If you’re able to work some extra days or take on some extra clients without degrading your quality of life TOO much, you can beat inflation this way.  Just working an extra day per month should be able to accomplish this.  Now of course you can’t continue to work an extra day year after year because you’ll run out of days and your spouse and kids will hate you.  So you need to find some other ways to increase your income.

Work FOR more.  Increasing the rate you get paid, by either asking for a raise or increasing your business rates is probably the best way to beat inflation when it comes to making more money.  This is because any increase on top of that will get you even more ahead of inflation!  For example, if you’re able to increase your salary by 5% each year, not only will you beat inflation every year, but each 5% increase will be compounded on top of the previous one.  So if you were able to get a 5% increase for your $10K salary, you will now make $10,500.  Another 5% increase will net you even more because it will be based on the $10,500 figure.  So your next 5% increase will get you to $11,025.  Eventually, you will leave inflation in the dust.

Getting a 5% raise every year is pretty difficult, but you should always be trying to get the highest raise you can whenever the opportunity presents itself.

Increase your investments.  Inflation needs to be battled not just year to year, but decade to decade.  Things will cost a lot more in 20 years than they do now, so you have to plan for that as well.  You can do this by increasing your contributions to your investment accounts.  If you invest wisely in the stock market with index funds you should be looking at a conservative 5-6% return on investment every year.  This will easily beat inflation, so increasing your investment contributions will increase your net worth and help ensure that you will have enough money down the road.

Spending less money

Being able to keep more of your hard earned money is another way to fight back inflation.  Using those savings to increase your investment contributions can provide a nice double whammy as well.

FrugalitySaving money is awesome.  There are no two ways about it.  It is said that a dollar saved is a dollar earned, but remember that we get taxed TWICE when we buy stuff (first income tax and then sales tax), so saving a dollar will actually save you a little more than a dollar.  It’s important to take a detailed and thorough look at your expenses every so often and see where you can shave off some money.  Reconsider your “necessities”, because a lot of them are just wants.

It’s also important to note that if you can cut your expenses down comfortably by 10% and can keep them around the same level for most of your life, those savings will help you for a lifetime.  By being able to live on less, you are giving inflation a sucker punch that it will not recover from.

Pay less taxes.  Uncle Sam wants his fair share for every dollar we earn.  And for good reason.  There is a country to run and it takes money to run a country.  The country being run WELL is a whole other issue, but the country still needs taxes to function.  But just like we do with our real uncles, we can play some games here.  Uncle Sam has allowed us to hide some of our money from him.  This is what a 401k account essentially is.  We get to set aside some money pre-tax and invest it in what we like (or what our company chooses for us).  We will have to pay taxes on this money eventually, but the hope is that in the meantime we reduce our taxable income early on and that money grows a lot before we have to eventually give our share in taxes.

You can also pay less taxes by making sure you take all of the deductions you are eligible for.  You can read up on these on your own or get your taxes done by a reputable professional.  Most online tax programs like TurboTax will do their best to make sure you get what you’re eligible for also.

There are still some steps to take even if you are wildly successful in saving money and making money.  If you make more money and end up spending it, you have done nothing to beat inflation.  If you save some money but just let it sit there in your checking account, it’s serving as a nice buffer but it can be doing so much more.  The key to bring it all together is to put your savings and extra income to good use by increasing your contributions to your emergency fund, decrease debt and increase investments.  Inflation will never know what hit it.



  1. This article highlights a classic FI question we ask ourselves. Is it better to earn more or spend less to achieve FI. I’m of the camp that saving is much easier and more practical and earning more. Earning more never guarantees a good savings rate… but a good savings rate guarantees a good savings rate. In other words, you can earn $100k a year but spend $99k and you’re in trouble. Earn $50k a year but spend only $25k and you are in a much better position. Thanks for sharing.

    • Syed says

      You’re right it’s more about what you keep than what you make. Thanks for the comment.

  2. Paltry savings interest rates and inflation are the big reasons why I try not to keep too much cash in regular bank accounts. I adopt both approaches when it comes to money, earning more with time and monitoring our spending. Both have helped us to achieve a high savings/investing rate every month. And yes to minimizing your taxes however legally you can!

    • Syed says

      Many people just let their money sit in a checking account. I guess they just like looking at that big number. Put that money to work! Thanks for the comment Kassandra.

  3. I enjoyed your take on this, Syed! I’ve been a pretty good saver most of my life, which is why I’m trying to focus on the “earn more” side now. I can’t wait for my student loans to be gone so that I can start investing more as well.

    • Syed says

      Thank you for the kind words Erin. Yeah I’m eagerly awaiting my student loan payoff day as well. There will be a grand celebration!

  4. Kim says

    I am all about minimizing taxes, while making more money. Those are a killer if you don’t take advantage of all the options available to reduce them.

    • Syed says

      Exactly I know some people who didn’t even know they get a deduction for student loan interest. It’s pretty surprising since taxes are usually the biggest expense for people. Thanks for the comment!

  5. I’m trying to employ the work FOR more strategy.

    • Syed says

      Yeah same here. Much more efficient use of time than simply taking on more work.


  1. […] against evil.  It makes really dull subjects sound pretty darn epic.  I previously wrote about how inflation is a beast and you need to slay it.  I’ve also written about the monstrous nature of student loans and […]

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