The annual inflation rate currently stands at 3.8%, which means your money is worth 3.8% less than it was this time last year. And when you're living on a fixed income, that fact can be scary. If there's a bright spot in any of this, it's that there are moves you can make to combat the impact inflation has on your finances.  

Balance your portfolio

Even if you find balancing your portfolio about as fun as a root canal, it's a vital step to take if you want to take control of your finances.

Kevin J. Brady, senior vice president of WealthSpire Advisors, told AARP, "The best investment to hedge against inflation is simply having enough stock exposure." Brady's advice makes sense, given that the average annual return of the S&P 500 index has hovered around 10% -- typically well above the inflation rate.

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Brady recommends allocating 40% to 55% of your portfolio to stocks if you want to outpace inflation. Before making a move, though, speak with a financial advisor who can review your portfolio as a whole and offer suggestions tailored to your case.

Consider inflation-proof investments

The goal is to ensure that at least some of your investments can hedge against rising inflation. Here's where you're in luck: When it comes to inflation-proof investments, you have plenty of choices.

Treasury inflation-protected securities (TIPS)

TIPS are government bonds that minimize the impact of inflation by increasing in value as inflation rises. You earn interest on the adjusted amount, and interest is paid twice annually. Backed by the U.S. government, they help shield you from inflation without being risky. TIPS are available through TreasuryDirect.gov.

I bonds

Another safe bet is I bonds, which are also tied to inflation. I bonds pay a fixed interest rate you can count on, plus an inflation-adjusted rate that is reset every six months. I bonds can also be purchased from TreasuryDirect.gov.

Real estate investment trusts (REITs)

With a REIT, you can invest in real estate through the stock market, offering you a much easier way to add real estate to your portfolio without becoming a landlord. As inflation rises, the cost of real estate typically rises with it, which in turn helps you keep pace.

Commodities and precious metals

The value of gold, silver, oil, and agricultural products tends to rise when inflation is high. Another hedge against inflation is to buy these commodities and precious metals through an exchange-traded fund (ETF).

Don't settle for low interest rates on cash accounts

If you have money sitting in a checking or traditional savings account, put it to work by transferring it to a high-yield savings or checking account. If you're working with an FDIC-insured bank or an NCUA-protected credit union, your money remains safe as it grows. Other options include depositing it in a money market account (MMA) or a certificate of deposit (CD).

There's no doubt that the impact of inflation on a fixed income can be damaging, but with so many options from which to choose, you don't have to let it get the best of you.