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How do millionaires handle high inflation?

If you are not a millionaire yet, you might be thinking that life is easy for us.  Indeed, it is.  However, this post is not about downplaying the challenges of people who are not wealthy and whose finances are in deep trouble due to higher prices.

That said, the millionaires are also negatively impacted by high inflation.  In fact, the things that we are used to cost even more in percentage terms because the sellers know that we can afford to pay for the.  So, we buy organic, grass-fed, and pasture raised milk and just because it is 30-40% more expensive than it used to be in 2019, it does not mean we will stop drinking it, but it does impact our finances.

Impact on investments: This is where I have seen the most impact.  And as my financial adviser keeps reminding me, if my portfolio goes down by 20% it has to go up by 25% in order to be where I was, and even more in order to be where I could have been if it had not gone down.  Inflation can impact investments in different ways, depending on the type of investment. For example, investments in stocks may be impacted by inflation as rising prices may cause companies to increase their prices, reducing profits. That is why I have seen the biggest declines in my growth/technology stocks, which form a sizable portion of my investments.

Higher cost of living: As I said in the introduction, inflation can cause the cost of goods and services to increase, which can impact the lifestyle of millionaires who are used to a certain standard of living. They may need to spend more money to maintain the same lifestyle they had before.  Like other Americans, we have cut back on dining out, but still it costs a lot more to live.

Impact on debt payment: Thankfully, I have a very attractive mortgage from 10 years ago, and like many millionaires, I do not have credit card debt.  Our car is 10 years old and we are tempted to sell it before it touches the 100,000 mile mark, but we think that car prices are simply too high to buy right now and interest rates on auto loans are also outrageous.  But, inflation can impact you in a positive way as well since with the value of the debt decreasing over time as the value of the currency decreases. This can be beneficial for millionaires who have borrowed money as they may end up paying less than they originally borrowed in real terms.

Reduced purchasing power: As the value of money decreases due to inflation, millionaires may find that their wealth has less purchasing power than before. This means that they may not be able to buy as much with the same amount of money.

So the things that we are doing are basically hoping that eventually the high interest rates will bring down inflation and then we can heave a sigh of relief and maybe buy a new vehicle.