Inflation Surges to 40-Year High: Here's How You Can Protect Your Money

Living costs are soaring, but don't give up just yet.

It's hardly a secret that inflation has been rampant since the start of 2022. These days, consumers are racking up large credit card tabs just to keep up with the cost of essentials like groceries, utilities, and gas. And the problem could get worse before it gets better.

In June, the Consumer Price Index, which measures changes in the cost of consumer goods, rose 9.1% on an annual basis. That's higher than May's reading and higher than the 8.8% increase economists were expecting. That 9.1% measure also marks the highest increase since November of 1981.

Now the good news (well, sort of) is that the Federal Reserve is taking steps to cool inflation by implementing interest rate hikes. The logic is that by making borrowing more expensive, it will lead to a pullback in consumer spending, thereby driving the cost of goods downward. (The Fed's policies could also spur a recession, so there's that.)

Meanwhile, it's important that consumers take steps to protect their money in the face of inflation. Here are some options in that regard.

1. Buy stocks

Any money you might need on hand for near-term goals or emergencies should sit in a savings account, even though the interest you earn on that cash may be fairly minimal. But if you have money you don't plan to use for quite some time, it pays to open a brokerage account or IRA and invest it in stocks. If you choose the right investments, you might grow your money at a rate that beats inflation.

2. Buy I bonds

I bonds are government bonds whose interest rate is tied directly to inflation. Right now, I bonds are paying a lot of interest because inflation levels are high. But that's an easy way for you to snag a large return on your money without taking on the same risks of putting your cash into the stock market.

Now one key difference is that when you buy stocks, you can sell them as you please. Once you purchase I bonds, you must commit to holding them for at least a year, and there are penalties for cashing them out prior to five years. Also, do keep in mind that because I bond interest is pegged to inflation, once living costs come down, those bonds could start to pay less. But right now, they're a solid bet.

3. Pay off high-interest debt

Have a nagging credit card balance or home equity line of credit? Now's the time to get rid of it, before it costs you more. Many high-interest borrowing products also come with variable interest rates. And since the Fed is raising rates, your credit card or HELOC could soon get more expensive to pay off.

Rampant inflation has been with us for months, and it may take time before living costs drop to more moderate, manageable levels. Take these steps to protect your money in the face of wild inflation -- and also, in the face of upcoming interest rate hikes.