What is Inflation Amputation?

Last week, I was meeting with one of my longtime clients at Coto Insurance, the firm I founded back in 1991. She’d been with me almost from the beginning, and now her son and his wife are clients of mine, too.

In all those years, inflation has never been as bad as it is right now. So, my client told something disturbing: Her son and his wife were thinking about cutting back their life insurance and health insurance because of inflation.

They have two young children and two decent incomes. So why would they do this?

“They’re worried about inflation eating up all their money,” my client said.

Unfortunately, this wasn’t the first time I’d heard something like this. I call it Inflation Amputation. I define it like this: You’re panicked by inflation, so you’re making financial decisions that won’t save you much now – but will cost you a heck of a lot more later.

An awful example of Inflation Amputation

Debt.com recently interviewed some executives at The Hartford insurance company, which had polled nearly 1,000 people about their employee benefits. The worst result from that poll: 4 in 10 were cutting back on those benefits because of inflation.

But here’s the thing: Your benefits aren’t just a cost, they’re savings. You’re literally buying something that pays you back many times that price.

Medical insurance, health savings accounts, and 401(k)s are just three lucrative examples of the benefits many employers offer. Cutting back on any of those will cost you later, whether it’s in a few months or even a few years.

“But Vicki,” you might protest, “once inflation eases, I’ll go back and contribute to my 401(k)!”

First, you might or you might not. I’ve noticed once people stop contributing to any retirement account, it’s hard to get back in the habit. Second, you’re giving up free money now – from your workplace.

That’s because many employers match your 401(k) contributions. According to the Society for Human Resource Management, “92 percent of employers with 401(k) plans match employees’ 401(k) contributions, with the most common match being $1 for every $1 an employee contributes up to 6 percent of the employee’s annual salary.”

In plainer English, that means nearly all employers give you money if you save some money, and a lot of them will match that dollar for dollar. When you cut back or stop contributing, poof, you’ve lost free money!

Inflation is impatience

When prices start rising suddenly, panic sets in. How high will it go? When will it stop? After a few months, we worry that this is the way life will be from now on. It isn’t.

During the worst of the Great Recession, people panicked, too. They sold stocks at the bottom of the market; they dumped property for pennies on the dollar. These were well-off and smart individuals, but they panicked because they thought things would never get better again.

Inflation does the same thing to those who are less well-off but equally smart. They think to themselves, “If prices are rising today, they’ll keep rising tomorrow. Soon, I won’t have much left, so I need to make big, bold moves today.”

Except it will get better. Gas prices are already easing. Food prices are still high. Supply chain issues still make it hard to even buy certain items, much less at a good price. But trust me: Nothing lasts forever. Neither the good times or the bad times.

Use your money like you use your life. We’ve all known someone who drinks too much or parties too hard, and they excuse it with, “Hey, I could die tomorrow!” We know that’s an irresponsible way to live. But then we spend our money under that same logic, and we don’t see the irony.

Don’t be dumb with your money. Be patient. And if inflation is eating away at your basic living expenses, get professional help. That’s why places like Debt.com exist. They offer a deep dive into your finances for free, and they point you to proven programs that can help you with everything from your housing costs to your credit card bills.

If you’re going to amputate anything, let it be your debt.