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Coping with inflation

Prices are rising, and Americans' budgets are getting squeezed. Here are some tips to beat inflation.

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By Gerri Willis, CNN

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NEW YORK ( -- Federal Reserve Chairman Ben Bernanke is hinting that inflation concerns will keep the Fed from cutting rates again. Here are our top tips on how to cope with inflation.

1. Change your habits

How many times have you grabbed a cup of coffee on the way to work? At $1.40 a day, that would cost you $364 a year. If you bought a bottle of water five days a week, that would cost you $325 a year.

Maybe you've gotten over the mid-day hump by frequenting the vending machine at work. At $1 a pop, five days a week, you're spending $260 a year. If you get a manicure every month, that will add up to $240 a year.

It's time to rethink those purchases that have become just habits.

2. Cut corners

From the grocery store to your local mall, prices are increasing across the board. To cut your food shopping costs, go for store brands over name brands. The quality is the same, but you'll cut costs significantly. Visit Web sites like or And get a store card. This way you'll get automatic discounts. And of course, never shop on an empty stomach - chances are you'll be more vulnerable to temptations.

To avoid the markups at the mall, take advantage of local resources. Check out to find sales in your area. You can also check out This is an Internet-based group that links up people who are getting rid of stuff with people who want it. All of the items are given away for free.

3. Insulate your nest egg

You may think your retirement is safe from inflation. But keep in mind, every dollar you save loses value over time. During times of inflation, you need more money to combat rising prices. If you are in retirement, you'll want to keep at least half of your portfolio in stocks rather than bonds says Robert Brokamp of Stocks have outperformed inflation over every 17 year period since the 1800s.

On the other hand, bonds have consistently done worse over times of inflation. If you do have bonds in your portfolio, you may consider splitting them into TIPS (treasury inflation protected securities). In these investments, principal and interest payments increase when inflation increases. You can buy them from the government at or from companies like Vanguard or Fidelity. Now, if you have a decade or two before retirement, make sure you have a diversified portfolio with a mix of equity investments.

4. Get the forecast

We will get inflation numbers on Friday. The forecast is for half a percentage increase in inflation. By the end of the year, inflation is expected to be 3.5% higher than it was last December at this time. Next year may bring us lower inflation, but that all depends on the Federal Reserve.  To top of page

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