Inflation vs. Passive Income 2: 5 Steps to Beat Inflation

Inflation is upon us. We are entering an inflationary time that the US hasn’t seen since the 1970s. We need to understand what inflation is and how we can combat it with sources of passive income.

Luckily, I have been writing about inflation for the last 6-8 months, so I have some prior works you can read to get started.

1. Inflation vs. Dividends
2. Inflation vs. Royalties
3. Inflation vs. Rents
4. Inflation vs. Crypto
5. Inflation vs. Passive Income
6. Inflation is Coming
7. Prepare for Inflation

Great! Now that you caught up, let’s talk about today’s inflation (Winter 2021). I just read a couple of sobering articles on inflation written by my favorite author on Seeking Alpha, Rida Morwa. I highly recommend you read this article on the inflation and this one on stagflation. 

Annuities vs. Dividends

How’s inflation today? In October 2021, the core price index inflation was 6.2%. That means you would need your investments to earn over 6.2% to beat inflation. That’s a pretty good amount of income from the stock market.

Luckily, we invest outside of the stock market to get great returns, maybe even infinite returns. The paychecks from our earned income jobs are slowly rising, but not fast enough to beat inflation. So, how do we defeat the inflation monster and live our best lives?

Become comfortable with being uncomfortable. You have to get out of your comfort zone. Working a job isn’t going to make you rich, and it won’t even allow you to beat inflation. Your friends and family may think you are crazy, but you’ll need to take your life in a different direction.

Creating streams of passive income is not for everyone—in fact, most people won’t even attempt to start. But, if you are serious about your future, becoming debt-free, providing for your children, and beating inflation, you’ll have to make money in your sleep (passive income). 

So let’s talk about passive income. In the article “New Year’s Passive Income Resolution 2022,” I discuss creating $100/month in passive income. However, we will need much more than that to beat inflation.

Blue Chip Stocks: Tasty Growth and Yummy Dividends

Five Steps to beat inflation. I have five steps you can do to beat inflation that is running over 6%. These steps will all make you uncomfortable, as they should. You don’t earn a high return with traditional investments like certificates of deposit, high yield savings accounts, and treasury bonds.

But always remember, “There is no such thing as risky investments, only risky investors.” From Robert Kiyosaki. I recommend “Rich Dad’s Guide to Investing” if you want to understand his philosophy on investing. By the way, he is my favorite author and someone whose words have changed how I view life. Let’s dig into my five steps.

1) Move your emergency fund into UDSC stable coin. First, you’ll need to earn a good return on your emergency funds. I would keep about $2,000-$3,000 in a local high-yield savings account, and the rest I would move to Voyager and USDC. Why?

You’ll Need $20,000/month in Passive Income

Voyager offers 9% interest on USDC. You’ll be beating inflation while your money sits in an (almost) trusted asset. I keep about $1,000 in USDC, and I’m slowly growing my pile. I have $10,000 total in crypto, most of which is earning some kind of interest. 

2) Move a small percentage of net worth into alternative assets. By small percentage, I would recommend no more than 5-10%. We don’t know how the markets will react to inflation or interest rate hikes by the Federal Reserve, so we have to hedge. 

Alternative assets move separately from the stock market, so they should be immune to stock market volatility. That doesn’t mean they get a free pass during inflation; however, they won’t be on the same roller coaster as the stock market. 

Here are some alternative assets I invest in; cryptocurrencies (interest + capital gains), gold and silver, commodities (oil stocks), and Fundrise (private REIT not on the stock market). Yes, oil is on the stock market, but the price will probably rise during inflation. You can add in collectibles, trading cards, cars, artwork, etc. 

Selling Covered Calls for Passive Income

3) Start an income portfolio. With income investing, I strive for an 8% dividend yield, which beats inflation. You’ll need to understand investing for income before you hop into the game. It is much different from dividend growth investing. 

4) Rent a room. The number one thing you can do to beat inflation is house hacking. Your home is the number one expense you have every month. Anything you can do to mitigate your housing costs will beat inflation. 

I just wrote an article on other ways to make money from your home outside of renting a room. The article is “Self-Storage vs. Mobile Home vs. RV Park,” and I discuss creating passive income on a one-acre lot of land. 

5) Start a blog. Yes, sorry, you’ll have to put yourself out there. A blog costs $200/annually, and you can make much more—in time. Yes, it’ll take a few years to get SEO traffic to your blog, but that’s okay. Beating inflation isn’t instant (except for renting rooms) because all income streams take time to mature.  

I recommend that you start with writing product reviews and book reviews to start your blog and add in diverse content from your experience and studies. 

HENRY: High Earner Not Rich Yet

Conclusion. I do all of these things, plus more, to beat inflation. Inflation still pisses me off; but, it is supposed to be a thorn in your side. It takes the proper financial mindset and financial intelligence to counteract inflation. 

Once you understand the inflation numbers, you’ll be in a better position to beat inflation. Always keep the number 6% in your mind. Not everything you do needs to exceed 6% but understand the number.

Renting rooms and starting a blog are so important because they can provide an infinite return. They are low-risk-high reward investments. Do everything in your power to exploit these opportunities. 

Inflation is not leaving anytime soon and may even get worse. Beating inflation needs to be a top priority if you plan on surviving with your cash intact. 

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