Earlier this year I wrote about how Inflation is eroding the everyday person’s wealth (in obvious and deceptive ways).

In the next few paragraphs, I plan on sharing what can be done to combat the detrimental effects of inflation. The rising cost of goods and services impacts everyone, but for healthcare professionals—whether employed or self-employed—it presents unique challenges. Inflation erodes the purchasing power of your money, making it essential to implement strategies that not only protect but also grow your finances in this volatile environment.

In this post, I’ll explore how you can inflation-proof your financial future. From diversifying investments to adjusting savings goals and pricing strategies, these tips are designed to keep your finances resilient amid rising costs.

1. Understand How Inflation Affects Your Finances

Before diving into strategies, it's important to understand how inflation impacts different aspects of your financial life. Inflation means that the cost of goods and services increases over time, which erodes your purchasing power. For healthcare professionals, this could mean higher costs for medical supplies, and equipment, rent for clinic space, and even day-to-day living expenses like groceries or gas.

If your income doesn’t keep up with inflation, you’re effectively earning less each year. This underscores the importance of actively planning to keep pace with rising prices.

2. Diversify Your Investments

One of the best ways to inflation-proof your finances is by diversifying your investments. Inflation tends to reduce the value of cash savings, but certain asset classes actually perform well during inflationary periods.

• Stocks: Historically, equities have provided solid returns that outpace inflation over the long term. As a healthcare professional, consider investing in dividend-paying stocks or healthcare-related companies, which are likely to continue growing even during inflationary cycles.

• Real Estate: Real estate is another inflation hedge, as property values and rental incomes tend to rise along with inflation. If you own your own practice, you may want to explore investing in commercial or residential real estate as an additional income stream or as a means to grow your wealth.

• Commodities: Commodities like gold, silver, bitcoin, and oil often see price increases during inflation. Investing in commodity-focused exchange-traded funds (ETFs) can provide your portfolio with additional protection against inflationary pressures.

• Treasury Inflation-Protected Securities (TIPS): TIPS are government bonds that adjust with inflation, making them a low-risk way to preserve the value of your money over time.

The key is to ensure that your investment portfolio is well-diversified across multiple asset classes, rather than relying solely on cash or low-interest savings accounts, which can lose purchasing power in an inflationary environment.

Example Time: The Erosion of Purchasing Power

Let’s consider an example of how inflation can erode your savings if left unchecked.

Imagine you have $100,000 in savings, and inflation is running at 3% per year. If your savings are sitting in a low-interest savings account earning 1%, the real value of your money is decreasing over time.

• Year 1: $100,000 x (1% - 3%) = -2%, leaving you with the equivalent purchasing power of $98,000.

• Year 5: After 5 years, you’d have the equivalent purchasing power of approximately $90,574, even though your savings balance may have increased to $105,101 (assuming 1% interest annually).

In just five years, inflation can diminish the purchasing power of your money by nearly $10,000. That’s why it’s crucial to have a portion of your savings in higher-return investments that outpace inflation, such as stocks or real estate.

3. Adjust Your Savings Goals

Saving money is always a good practice, but in times of inflation, simply saving isn’t enough. As inflation rises, so should your savings goals.

• Increase Your Emergency Fund: If the cost of living increases, so should the amount you have stashed away in your emergency fund. Typically, financial advisors recommend saving three to six months' worth of expenses. However, with inflation, it’s wise to adjust this to account for rising costs, especially in the event of a financial emergency like a sudden illness, equipment failure, or a drop in client appointments.

• Reevaluate Your Savings Rate: If you’re currently saving 10% of your income, consider bumping that number up to 15% or more. This will help you stay ahead of inflation. The goal is to ensure your savings maintain their value, even as inflation creeps higher.

• Invest Your Savings: Rather than keeping your savings in a low-interest account, consider moving some of that money into investment vehicles that can offer higher returns. This could be anything from a high-interest savings account to an ETF or mutual fund that focuses on inflation-resistant sectors.

4. Increase Your Pricing Structures

For self-employed healthcare professionals like physical therapists, nutritionists, or chiropractors, the costs of running your practice have likely increased. Whether it’s paying more for rent, equipment, or supplies, inflation directly impacts your bottom line.

• Adjust Service Prices: While raising your rates may be uncomfortable, it’s a necessary step in inflation-proofing your practice. To make this more manageable for your clients, consider implementing small, regular price increases rather than a large hike all at once. This helps your clients adjust and ensures that your business income continues to grow in line with inflation.

• Justify Your Price Increase: Be transparent with your clients about why you’re raising prices. If your costs have gone up, explain how this affects your ability to provide high-quality care. Highlight any additional value you offer—whether it’s extra services, improved technology, or extended appointment times—to help justify the increase.

• Explore New Revenue Streams: Diversifying your income as a healthcare professional can also help counterbalance inflation. Whether it’s offering virtual consultations, creating online courses, or selling specialized products, additional revenue streams can provide financial security in the face of rising costs.

5. Review Your Business Expenses

Another aspect of inflation-proofing your finances is taking a hard look at your business expenses. You want to ensure that you're getting the best value for money while keeping costs under control.

• Negotiate with Suppliers: If you run a clinic or practice, you’re likely purchasing supplies regularly. With inflation driving up costs, it’s a good idea to reach out to suppliers to negotiate better deals or bulk discounts.

• Consider Outsourcing: Outsourcing certain tasks like billing, marketing, or administrative work can often be more cost-effective than hiring full-time staff. This helps reduce the impact of wage inflation, while allowing you to focus more on patient care and business growth.

• Streamline Operations: Evaluate your current processes and see where you can cut unnecessary costs. For example, shifting to a paperless system, reducing energy consumption, or using more cost-effective software solutions can help reduce overhead and combat rising prices.

6. Stay Informed and Adapt

Finally, staying informed about economic trends is key to making proactive financial decisions. As inflation fluctuates, it's crucial to remain flexible and adapt your strategies accordingly.

• Follow Market Trends: Keep up with the latest economic reports and inflation indicators. This will help you make informed decisions regarding investments, savings, and even your pricing structures.

• Consult a Financial Advisor: If you're unsure how inflation is impacting your personal or business finances, working with a financial advisor can provide tailored advice to help you stay on track.

Resources to Inflation-Proof Your Finances

Here are some valuable resources to help you stay ahead of inflation:

• Bank of Canada Inflation Calculator: A useful tool to see how inflation has affected purchasing power over time.

• ETFs: Research ETFs that are inflation-resistant or focused on sectors that typically perform well during inflationary periods.

• Morningstar’s Guide to TIPS: Learn more about Treasury Inflation-Protected Securities.

• Fee Calculator for Healthcare Professionals: Use this tool to help set your prices in line with inflation.

Inflation may be a constant challenge, but with the right strategies, you can protect your finances from its effects. By diversifying your investments, adjusting your savings, and adapting your pricing structures, you can not only survive but thrive in an inflationary environment. As a healthcare professional, taking these steps will not only ensure your financial stability but also help you continue providing top-tier care to your patients without the stress of financial uncertainty.

I hosted a webinar on Embodia where I discussed the concept of inflation eroding your wealth if you are someone who is a paycheck-to-paycheck consumer or someone who saves more than you invest. The reason is that your purchasing power is declining by 6% year over year. Your goods and/or services you consume are getting more expensive each year. To compound that, unless you received a 6% pay increase over the last 12 months, you are earning less (relative) to what you consume.

In my opinion, if you want to grow your wealth in this environment, saving isn’t the answer (saving is important with certain short/mid-term goals), but instead, investing is the only way to get ahead of this 6% headwind.

Granted, not everyone has similar consumption patterns. We each have distinct wants and needs that govern our spending and this will result in inflation affecting us uniquely. CNBC published an article on the effects of inflation on your income; it does bring to light some interesting topics.

Inflation spikes aren’t new. They've happened several times over the last hundred years. What may be new, is that you have never weathered one in your adult/career life. It is one thing to notice that your parents' spending/saving habits change as children and a completely different thing to go through an economic downturn with the responsibilities of a young professional. It won't be easy but it will be worthwhile. It starts first with educating yourself.

You can prepare for most economic hardships by getting your finances in order. It really starts with the basics. You DO NOT need to do it YOURSELF, you can see how I’ve developed my own plan, by grabbing my FREE RECESSION SURVIVAL GUIDE.