Inflation is a silent budget killer.
It causes everything from your groceries to your gas to go up as the purchasing power of money decreases. In a good year it will reduce your purchasing power by 2% to 3% – today inflation is hovering above 8%, a level not seen in 40 years.
But what does that mean for you? Rampant inflation is affecting more people, but you don’t have to sit idly by and watch your bills keep mounting. There are steps you can take — and actions you should avoid — that can help you get through this period of high inflation, no matter how long it lasts.
One thing that’s easy to overlook about the current fear of rising prices is that it’s not affecting everyone equally, meaning it won’t affect every household to the same extent. Personal finance is different for everyone, and inflation rates are just as different depending on whether you bought a used car, how much you drive, and whether you have a family or are single, says Ryan Frailich, CFP and founder of Deliberate Finances, a financial planning firm festivals
To get a better idea of how inflation is affecting you, compare your spending in the first four months of 2021 to the first four months of 2022. Many people may be surprised that they may not personally have spent that much Inflation had felt like them. For others, the full weight of inflation could present a significant financial hurdle to overcome.
Regardless of your personal situation, it’s always a good time to review your financial decisions to ensure they align with your goals.
Don’t panic during inflation. Find other ways to offset inflation, such as B. to keep investing, increase your income or reduce your expenses.
Dealing with rising inflation
The best way to combat rising inflation is to get back to basics: know what you’re spending your money on, have a long-term investment plan, and think about ways to increase your income.
Here are some steps you can take to limit the impact of inflation on your life.
Investing the cash flow you have outside of your emergency fund is one way “to keep up with or even beat inflation,” says Samuel Deane, founder of Deane Wealth Management, a financial planning firm.
Seeing rising interest rates, a falling stock market, or skyrocketing inflation can make you doubt yourself. However, a good diversified investment plan should be put in place from the start to deal with ups and downs. “You shouldn’t let these things distract you,” says Deane. While you should pay attention to what’s going on, long-term investing is key.
Find ways to reduce your expenses
You may be able to offset some of the increase in your spending by taking a closer look at your bills, cutting what you don’t need and trying to reduce or negotiate the rest. Looking at all of your bills is an easy place to start, says consumer finance expert Andrea Woroch. We’re often looking for the best price when initially buying something like insurance, but over time the price goes up and you stop looking around, she says.
Common bills that could be trimmed or reduced include:
One way you can potentially cut your phone bill is with a prepaid service plan, Woroch says. With the proliferation of WI-FI, an unlimited data plan may not be necessary. “There’s probably a cheaper plan that you’d be a better fit on, you don’t need that unlimited data. So why pay the extra money?” says Woroch. Mint Mobile is one example, it only costs $15/month per line for unlimited calls and texts with 4GB of data.
Reviewing your insurance coverage could also result in significant savings. Woroch noticed that her monthly mortgage payment was increasing by $50 a month, and when she investigated, she found that her homeowners insurance had increased. She called her insurance company and ended up saying, “Better coverage for less…it was basically a little over $1,000 less,” she says. She even took another $200 off the price by increasing her deductible because she has the savings to cover a larger deductible.
While combing through your bills and cutting back on what you don’t need is a good place to start, you’ll always need to buy basic necessities (grocery, gas, housing), and many of these are more expensive.
When it comes to groceries, you can save money by being more efficient with what you buy. American households throw away an average of $1,600 a year in products, according to a report by waste management consultancy RTS.
Meal planning is an easy way to get better at grocery shopping. Check your calendar and plan for the nights you’ll be home and the days you or the kids will have to bring lunch to work or school. Find recipes that use the same ingredients, she says. That way, you’re more likely to use up the whole bag of potatoes or the bunch of fresh parsley.
You can also use coupons, cashback credit cards and cashback portals to save. “Using these cashback apps and tools on top of what you’re making on your credit card is such an easy way to make extra money,” says Woroch. Woroch has used sites like CouponFollow.com to find discounts. With Cashback Monitor you can search dozens of cashback and rewards portals to see which offer the biggest rewards where you want to shop.
There are also plenty of opportunities to buy used furniture, homeware or clothing at hefty discounts. Facebook Marketplace is a good place to find items that are sold locally. Woroch also mentions sites like Tradsey, Swap.com, and Poshmark. “You can even swap clothes at The Swoondle Society,” she says.
Look at I Savings Bonds
For extra money sitting in your savings account earning an interest rate well below inflation, Series I savings bonds might be a better option. However, whether this makes sense depends on when you need to access the money.
“Let’s say you are one to five years away from wanting to buy a house. I think investing in I-Bonds can be a pretty good alternative,” says Deane. The interest rate on I-Bonds shifts with inflation and is currently at an annual rate of 9.62%. This rate resets (up or down) every six months.
Each individual can purchase up to $10,000 in Series I savings bonds per calendar year, and you can use your tax refund to invest an additional $5,000. You must own these bonds for a full year before you can sell them, and if you cash them out before holding them for five years, the interest from the last three months will be forfeited.
You can buy Series I savings bonds on the incredibly outdated TreasuryDirect website. Although these bonds have a better return than a CD or savings account because of the small dollar amounts, they probably won’t be a cornerstone of your investment portfolio. The percentages sound great, but are all the dollars you’re getting worth it? says Frölich.
Increase your income
The unemployment rate has almost returned to pre-pandemic levels and many companies are struggling to hire new workers. While increasing your salary overnight may not be easy, workers in today’s job market are better positioned to purchase their services or to negotiate better pay. I’ve had clients pointing to higher inflation as well as their job performance in order to get a promotion or raise, says Deane.
You can also earn extra money outside of your job. There are ways to sell things that you don’t use on eBay, Facebook Marketplace, or Craigslist. I would go one step further and think about how to rent your stuff and generate regular income, says Woroch.
Sites where you can rent your stuff include:
There are also a large number of part-time jobs that can be done flexibly in terms of time or from home. Pet sitting, online tutoring, or driving for a ridesharing service could all be done outside of your 9-to-5 job. You may find freelance work at places like Upwork or Flexjobs. While there isn’t always a quick or easy way to sustainably increase your income, there are ways to make extra money to cover more immediate expenses.