Discover How To Protect Your Savings Before It's Eaten By Inflation or a Bank Bail-In Swallows It Whole

If you have money sitting in a savings account, the purchasing power of your savings is being stolen from you through the hidden tax of inflation.

 

Even if you believe that the, seemingly low, official US. inflation rate is being reported correctly, the rate of inflation is still significantly higher than the interest earned on savings accounts. 

If you suspect that the U.S. government has been "cooking the books," to make it look like the economy is doing better than it really is, shadowstats.com shows that inflation could be much higher than what U.S. government reports make it out to be. Most personal finance advisers suggest that you have an emergency savings cushion of at least 3 to 6 months of your living expenses (that's living expenses, not income),  or in case you are out of work for an extended period of time or an unexpected emergency happens. Some recommend  having as much as 12 months of living expenses as short term savings.

Building an emergency savings of 3 -  6 months of living expenses can be hard enough on it's own, but how can you protect the value  of your emergency savings from being eroded by inflation? 

And if having the purchasing power of your emergency savings stolen through inflation wasn't bad enough, when you keep the bulk of your emergency savings in a bank, there's a chance it might be stolen from you by irresponsible, money grubbing banksters as part of a bank bail-in.

 

A Different Way To Think About Savings

To protect your savings from being eroded by inflation, or from being stolen from you as part of a bank bailout, it'll help to think of savings as more than just money in the bank.  It'll also help to think of the returns you get on your savings, in a different way.

 

Life is unpredictable.  Sometimes bad things happen that we didn't expect to happen. With short-term savings, what you're really buying is the peace of mind that you'll have what you need, when you need it.

You're buying  rent or mortgage payments,  car payments, and groceries, when you lose your job, or are unable to work for an extended period of time, because of illness or injury.

You're buying a replacement for a major appliance that just died, or a repairs for an unexpected auto break down.

You're covering the costs of an unexpected trip to the emergency room, or of an expensive, but necessary, medical procedure.

 

 

What would you do, if price inflation cut the purchasing power of your hard won savings in half?

What would you do, if you needed access to that money, but couldn't get to it because of a banking crisis, a widespread power outage,  or even just a bank error?

 

What You Can Do To Protect Your Savings

The good news is, you can probably protect some of your short-term savings, and if you expand your definition of the word, "return," a bit, you'll likely get a better return , than what you get from keeping it in a bank.

 

The bad news is, you probably can't protect all of it. In a moment, I'll get to why it's a bad idea to try to do so, but first I'm going to tell you what you can do to protect some (or most) of it.

 

The paradox of protecting your savings from inflation and bail-ins, is that you protect your savings by spending it.

The whole reason for for emergency savings is to still be able to get the stuff you need, when bad stuff happens. The reason to have 3 - 12 months of living expenses set aside, is that unexpected emergencies tend to be expensive, and if you find yourself out of work, you could be out of work for a long time.

 

If you are paying interest on a mortgage, auto loan, or other debt, it usually makes more sense to  pay 3 - 12 months ahead on the loan, than it does to leave enough money to continue making your loan payments wasting away in a savings account. 

In most cases, you'll end up saving far more in interest dollars, than you would have earned in interest, had you kept that money in a savings account.  That reduction in the total cost of your loan could be seen as  a sort of untaxed return on the investment of paying ahead on your debt. 

It gets even better because, not only do you have months of loan payments covered, reducing the total cost of the loan, but you're also not taxed on the interest dollars you didn't have to pay. If you look at the number of interest dollars you save on the total cost of the loan as a sort of return on your investment in paying ahead on your debt, it can be seen as a nontaxable return on your investment.

 

If you rent your home, you might be able to employ a similar strategy of paying ahead to protect your savings. Some landlords will give discounts to renters who pay their rent in 3 or 6 month blocks of time.  It's sometimes in the landlord's best interests to give a discount to a renter who is paying in advance, than it is to deal with a tenant who might be late with rent payments.

 

If you have a vehicle, you'll also need auto insurance, which is usually sold in 6 month blocks.  Insurers will let you pay monthly, but you pay a price to do so.  The first time I paid the full 6 months of my auto insurance in one payment, I some time to figure out how much I saved, and the interest rate I would've had to be earning to make that amount; with the same amount of money.

I don't recall what the exact numbers were at the time, but I do recall that I would've had to have been earning about a 19% interest rate on my savings account, to earn in interest, how much I saved by paying for the full 6 months of auto insurance.  

Make no mistake, paying for the full 6 months of auto insurance is better than having 6 months of insurance payments losing value in a savings account.

 

You can pay ahead on other things that you receive monthly bills for. It doesn't hurt to see if you can get a discount for doing so.

 

In addition to paying ahead on bills that you know you're going to be paying anyway, you can buy spares for things you know you're going to end up needing to replace.  As long as your spares are stored in such a way they won't get damaged or go bad, it can be useful to convert your savings into things you already know you're going to need.  If you watch out for sales, you can save more on the cost of stocking up than you would have earned in interest, by keeping that money in a savings account.

You can do the same thing with non-perishable (and sometimes perishable) foods.  Just be sure to rotate your stored food, and use it up before it expires.   

This strategy requires a bit of attention and storage space, but if you have the space for it, it can make sense to use it to protect the purchasing power of your savings.

 

Don't Spend It All

The whole point of these strategies is to protect your short term savings from the threats of inflation and bank bail-ins so that you can be reasonably sure to have access to what you need, when you need it.  It's based around the idea of spending some, or most, of the money that you would have kept in a savings account, on predictable expenses; the things you already know you're going to pay for anyway.

 

What about unexpected expenses, like an auto repair or a large hospital bill? You can protect some of your short term savings from inflation and bail-ins by paying ahead on things, but if you also want to be prepared for unexpected, emergency expenses, you won't be able to protect all of it. You'll need to keep, at least, some cash savings.

I'm not a financial planner, and I can only guess at what somebody's emergency savings needs might be.  If you choose to adopt some of these strategies, it's probably best if you keep at least $1,000 - $2,000 as cash savings for emergencies. You might need more or less, but It's a large enough amount that I think should cover most unexpected expenses.

Some of that cash savings should probably kept as physical, paper cash.  Keeping some of your emergency savings as physical cash will protect it from the potential threat of being taken as part of a bail-in, but just as importantly, you'll have a little bit of cash on hand; in case your bank accounts are inaccessible.

A former acquaintance, who participated in some of the rescue operations after Hurricane Katrina hit land, has suggested that people should keep at least $500 in physical cash. He mentioned encountering people who had plenty of money in the bank, but were unable to fill up the gas tanks in their cars, because power and internet outages kept their debit cards from working. 

I don't know if $500 in physical cash is the right amount for you to keep on hand, but I've seen that same amount echoed throughout prepper communities, as a suggested minimum amount to keep on hand, in case of emergencies.  If nothing else, it's a good starting point.