4 Ways to Beat Your Fear of Inflation

More than 90% of the U.S. workforce lies awake at night because of financial worries, according to a recent survey by ComPsych. At the top of the list of concerns? The cost of living.

The cost of living is directly dependent on inflation, which measures the rise in prices. As inflation increases, goods cost more and the purchasing power of each dollar diminishes. The investments most at risk of losing ground to inflation are longer-term, lower-risk places to stash your cash, such as bank accounts, certificates of deposit and bonds.

Inflation was at 4.9% in October, according to the Bureau of Labor Statistics. If you're losing sleep, here are a few things you can do to put your mind at ease:

Crunch the Numbers

Instead of lying awake at night worrying, turn to the online
savings and inflation calculator at BankingMyWay.com to determine what impact inflation is having on your savings.

Say you have $2,000 invested in a five-year certificate of deposit (CD) earning annual interest of 4%. Ignoring taxes for the time being, you'd have $2,433 when that CD matures. However, inflation can reduce the buying power of that cash significantly. Recalculating with inflation at 4.9%, that leaves you with only $1,916 in today's dollars. Cash that you keep in a low-yielding checking account would fare even worse: You'd only have $1,655 in today's dollars if your account paid only 1% interest.

Limit Your Deposits

Sacrificing a little buying power in exchange for regular access is worth it to make sure you have money to cover your everyday expenses. But it's important to minimize the impact of inflation where possible. Try to avoid keeping more than a month's worth of expenses, plus a little extra, in your checking account. And consider keeping three to six months of expenses set aside for emergencies. This money needs to be accessible, so consider keeping it in a higher-yielding money-market account. These accounts have more restrictions than regular savings accounts, but often pay higher interest rates on your cash. (For more on this, read here.)