Inflation is a silent budget killer.
It drives everything up, from your groceries to your gas, as the purchasing power of money goes down. In a good year, that reduces your purchasing power by 2-3%—these days inflation hovers above 8%, a level we haven’t seen in 40 years.
But what does this mean for you? With rampant inflation, it affects more people, but you don’t have to sit idly by as your bills keep rising. There are actions to take – and actions to avoid – that can help you get through this period of high inflation, for as long as it lasts.
One thing that’s easy to miss with the current anxiety surrounding rising prices is that it doesn’t affect everything equally, so it won’t affect every household to the same degree. Personal finances are 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 organization. solidify.
To get a better idea of how inflation is impacting you, compare your spending in the first four months of 2021 to the first four months of 2022. Many people may be surprised to see that they may not have to not personally have had as much inflation as they believed. For others, the full weight of inflation could be a significant financial hurdle to overcome.
Whatever your personal situation, it’s always time to reassess your financial decisions to make sure they align with your goals.
During inflation, do not panic. Find other ways to offset inflation, such as continuing to invest, increasing your income, or reducing your expenses.
How to deal with rising inflation
The best way to fight rising inflation is to get back to basics: know what you’re spending your money on, have a long-term investment plan, and consider ways to increase your income.
Here are some steps you can take to limit the influence of inflation in your life.
continue to invest
Investing the cash you have, outside of your emergency fund, is a way “to keep up with or even beat inflation,” says Samuel Deane, founder of Deane Wealth Management, a financial planning firm.
When you see rising interest rates, a falling stock market, or skyrocketing inflation, it can make you question yourself. But, a good diversified investment plan needs to be in place from the start to weather the ups and downs. “You shouldn’t let these things distract you,” Deane says. Although you want to be aware of what is happening, investing for the long term is essential.
Find ways to reduce your expenses
You may be able to offset some of your increased expenses 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 your bills is an easy place to start, says consumer credit expert Andrea Woroch. We often shop for the best price when we initially buy something like insurance, but over time the price goes up and you don’t keep shopping, she says.
Common bills that could be cut or reduced include:
A prepaid service plan is one way to potentially lower your phone bill, Woroch says. With the prevalence of WI-FI, an unlimited data plan may not be necessary. “There’s probably a cheaper plan that you’d fit in better, you don’t need that unlimited data. So why pay that extra money? said Woroch. Mint Mobile is an example, it only costs $15/month per line for unlimited talk and text with 4GB of data.
Reviewing your insurance coverage could also unlock significant savings. Woroch noticed that her monthly mortgage payment had increased by $50 per month, upon closer inspection she noticed that her home insurance had increased. She called her insurance and ended up with “better coverage for less…it was basically a little over $1,000 less,” she says. She even cut an extra $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 down on unnecessary is a good place to start, you’ll still need to buy essentials (food, gas, shelter) 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 compiled by waste management consultancy RTS.
Meal planning is a simple way to get better at the grocery store. Check your calendar and plan the nights you’ll be home and the days you or the kids will need 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 that whole bag of potatoes or bunch of fresh parsley.
You can also take advantage of coupons, cashback credit cards, and cashback portals to save. “Using these cashback apps and tools on top of whatever else you earn with your credit card is such an easy way to earn extra cash,” says Woroch. Woroch used sites like CouponFollow.com to find discounts. Cashback Monitor lets you search dozens of cashback and rewards portals to see which offer the greatest rewards where you want to shop.
There are also plenty of ways to buy second-hand furniture, household items, or clothes at a great discount. Facebook Marketplace is a great place to find locally sold items. Woroch also mentions sites like Tradsey, Swap.com and Poshmark. “You can even swap clothes at the Swoondle Society,” she says.
Look into Savings Bonds I
To get the extra cash that’s in your savings account and earning an interest rate well below inflation, Series I Savings Bonds might be a better option. But whether or not that makes sense depends on when you need access to the money.
“Let’s say you’re one to five years away from wanting to buy a house, I think investing in I bonds can be a really good alternative,” says Deane. The interest rate of I-Bonds evolves with inflation and currently stands at an annual rate of 9.62%. This rate resets (up or down) every six months.
Each individual can purchase up to $10,000 of 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 and if you cash in before you have held them for five years, you will lose the previous three months of interest.
You can buy Series I savings bonds on the incredibly outdated TreasuryDirect site. Although these bonds generate a better return than a CD or savings account due to the small amounts involved, they are unlikely to be the cornerstone of your investment portfolio. Percentages sound great, but are the total dollars you get worth it? said Frailich.
Increase your income
The unemployment rate is almost back to pre-pandemic levels and many businesses are struggling to hire. While it’s not easy to increase your salary overnight, in today’s job market, employees are in a better position to shop around for their services or negotiate a better salary. I’ve had clients point to higher inflation, along with their job performance, to get a promotion or a raise, Deane says.
You can also earn extra money outside of your job. There are options to sell things you don’t use on eBay, Facebook Marketplace, or Craigslist. I’d take it a step further and think about how you could rent out your business and get a steady income, Woroch says.
Sites where you can rent your stuff include:
There is also a wide variety of side jobs with flexible hours or that can be done from home. Pet sitting, online tutoring, or driving for a rideshare service can be done outside of your 9 to 5 job. You might be able to 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 options for earning extra cash to cover more immediate expenses.