Should You Prioritize Investing During Increasing Costs of Living?

Should you prioritize investing while the costs of living are increasing? In short, YES.

Our living costs are continuously increasing over time; we are at a point where they are rising particularly quickly at the moment. But it will pass, and prices will settle — we all just have to adjust the course as we navigate our way through. As long as your level of investing still matches your risk tolerance and your financial goals, your ship will continue to steer you forward.

A throwback to my family’s last battle with living costs

As COVID-19 started to enter my consciousness in 2020, it sent me running. Not for my mask and hand sanitizer (we didn’t yet know of such things), but I was running to check in with my PocketSmith.

I looked at our household income and knew what we had historically earned as we prepared for the fact that we might lose our jobs, a very real threat at the time. We didn’t lose our jobs, but our income decreased and became inconsistent. But that was manageable; we knew our minimum income needed to cover our minimum no-frills lifestyle.

I monitored it weekly as we adjusted to our new reality of a global pandemic. At the same time, I was keeping an eye on what local and global share markets were doing. They were dropping.

A top priority doesn’t have to be inflexible

One ‘expense’ that I kept in our budget, right alongside food, accommodation, utilities and transportation, was investing. My family has invested every month for over 15 years, and if I could avoid doing so, I didn’t want to stop that flow of money into assets that grew over time. To be clear, the basics of life took priority over investing, but if there were any way we could financially manage to invest as well, we would absolutely try to do so. Although I heard all the chat of meme stocks and supposed sure bets, I ignored all that share market noise. We stuck to the investment path we were already on.

I listed out the regular investments that we contributed to monthly in order of priority:

1. Retirement account for myself, and one for my husband
2. Share investment into ETF fund A
3. Share investment into ETF fund B
4. Retirement account for our daughter
5. Share investment into an ETF fund for our daughter

Because our income had dropped, and we didn’t know how long it would remain that way, we decided to continue investing in our retirement accounts as usual. They were our priority, and we could afford to do so. But with our share investments, we just didn’t have the income coming in as we once did, so we kept contributing to these accounts, but we reduced the amounts invested down to the minimum allowed by the fund manager, so they just kept ticking over until we stabilized our finances, which we were able to do. Because the amounts in our daughter’s investments were much smaller and already set at the minimum, we were able to cover those.

I monitored our income and expenses closely in PocketSmith. As the 20th of the month rolled around, I checked our cash flow and invested whatever we could manage above the minimum. Looking back over the last three years, the monthly amounts vary widely, but we still managed to invest something every month.

Staying the course is worth it in unstable times

Clearly, investing for us was and is a priority. We decided to do whatever we could to continue contributing to our share market investments.

The decision to do this came from years spent educating ourselves on how investing works and the fact that we are long-term investors who invest in long-term investments such as retirement funds and broad-based low-cost index/ETF funds. We saw that the looming pandemic had sent shock waves through the share market, and the price per unit of the funds we invested in had dropped too. By continuing to invest, we bought the same units at a cheaper price month after uncertain month. Over time, as the share markets rise again, as they always will, those units bought cheaply will increase in price, bringing our investment balance up.

We were so confident of this approach because of the steady way we invest. I’d strongly caution those looking to ‘nab a bargain’ or exploit a niche they see in the investing landscape not to use this uncertain time in our history to take an investing punt. If you are struggling to meet rising costs of living, gambling on the share market at the same time is a fool’s errand. We were not and did not gamble on the share market; instead, we invest steadily over time in assets that have proven to rise in value.

Investing can help you remain stable in an unknowable future

My advice to others is to use PocketSmith to understand what it costs to run your life and then understand that having money available to invest is not a ‘nice to have’; it is a necessity alongside all the other financial basics. Life is full of shocks, upsets and changes in direction, and if we paused investing every time one occurred, we would never invest. Continuing to invest in assets that grow in value over time will prepare us for the next global shock, the next recession, and the subsequent rise in the cost of living, and when that time comes, those investments can, in turn, be used to pay for the rise in expenses.

So, if you’re in the position to do so and can adjust how you spend your money so that you can continue to invest while your living costs are on the rise, I would absolutely make that a priority if you can.

Ruth blogs at thehappysaver.com all about how she and her family handle money. What’s the secret? Spend less than you earn, invest the difference, avoid debt and budget each dollar that flows through your hands. She firmly believes that if you can just get the basics right, life becomes easier from there on in.