Inflation is a silent budget killer.
It causes everything to go up, from your groceries to your gas, as the purchasing power of money decreases. During a good year, it cuts your buying power by 2% to 3% — these days inflation is hovering above 8%, a level we haven’t seen in 40 years.
But what does that mean for you? With inflation running rampant, it’s affecting more people, but you don’t have to sit idly by as your bills keep getting bigger. There are steps to take — and actions to avoid — that can help you navigate this period of high inflation, for however long it lasts.
One thing that’s easy to miss with the current anxiety surrounding rising prices is that it’s not impacting everything the same, so it won’t affect every household to the same degree. Personal finance is different for everyone and inflation rates are just as different depending on if you bought a used car, how much you drive and if you have a family or are single, says Ryan Frailich, CFP and founder of Deliberate Finances, a financial planning firm.
To get a better idea of how inflation is impacting you, compare your spending during the first four months of 2021 to the first four months of 2022. A lot of people may be surprised to see they may not have personally had as much inflation as they believed. For others, the full weight of inflation could be a significant financial hurdle to overcome.
Regardless of what your personal situation is, it’s always a good time to reassess your financial decisions to ensure they align with your goals.
During inflation, don’t panic. Find other ways to offset inflation like continuing to invest, increasing your income or reducing expenses.
How to Deal with Rising Inflation
The best way to combat rising inflation is to return to the basics: Know what you’re spending your money on, have a long-term investment plan and consider ways to increase your income.
Here are a few actions you can take to limit inflation’s influence in your life.
Investing the cashflow you have, outside of your emergency fund, is one way “to keep up with or even outpace inflation,” says Samuel Deane, founder of Deane Wealth Management, a financial planning firm.
When you see rising interest rates, a falling stock market or ballooning inflation it can cause you to second guess yourself. But, a good diverse investment plan should be set up from the start to deal with ups and downs. “You shouldn’t let these things distract you,” Deane says. While you want to pay attention to what’s going on, investing for the long term is key.
Find Ways to Reduce Your Expenses
You may be able to offset some of the increase in your 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 finance expert Andrea Woroch. We often shop around for the best price when we initially purchase something like insurance, but over time the price goes up and you don’t continue to shop around, she says.
Common bills that could be cut or reduced include:
One way to potentially trim your phone bill is with a prepaid service plan, Woroch says. With the prevalence of WI-FI an unlimited data plan may not be necessary. “There’s probably a lower-cost plan that you would fit in better, you don’t need that unlimited data. So why pay that extra money?” Woroch says. Mint Mobile is one example, it costs as little as $15/month per line for unlimited talk and text with 4 GB of data.
Revisiting your Insurance coverage could also unlock sizable savings. Woroch noticed that her monthly mortgage payment increased by $50 a month, looking into it she noticed her homeowners insurance had gone up. She called her insurance and ended up with, “better coverage for less … it basically was a little over $1,000 less,” she says. She even knocked another $200 off the price by increasing her deductible because she has the savings to cover a bigger deductible.
Although combing through your bills and cutting what’s unnecessary is a good place to start, you’ll always need to buy essentials (food, gas, housing) and a lot of those are more expensive.
When it comes to groceries you can save money by being more efficient with what you purchase. American households throw away an average of $1,600 a year in produce, according to a report compiled by waste management consulting firm RTS.
Meal planning is a simple way to get better at grocery shopping. Look at your calendar and plan for 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. This way you’re more likely to use up that entire 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 you’re earning from your credit card is such a no brainer way to make some extra cash,” Woroch says. Woroch has used sites like CouponFollow.com to find discounts. Cashback Monitor allows you to search dozens of cashback and rewards portals to see which ones offer the biggest rewards where you want to shop.
There are also lots of ways to purchase used furniture, home goods or clothing at a steep discount. Facebook Marketplace is a good place to find items being sold locally. Woroch also mentions sites like Tradsey, Swap.com and Poshmark. “You can even trade clothing at The Swoondle Society,” she says.
Look Into I Savings Bonds
For extra money that’s sitting in your savings account and earning an interest rate that is far below inflation, Series I savings bonds could be a better option. But whether or not this makes sense depends on when you’ll need to access the money.
“Let’s say you are one to five years away from wanting to buy a home, I think investing in I bonds can be a pretty good alternative,” Deane says. The interest rate for I-Bonds shifts along with inflation and currently is 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 another $5,000. You have to own these bonds for a full year before you can sell and if you cash out before holding them for five years, then you’ll forfeit the previous three months of interest.
You can purchase series I savings bonds at the incredibly outdated TreasuryDirect site. Although these bonds will earn a better return than a CD or savings account because of the small dollar amounts involved, it’s not likely to be a cornerstone of your investment portfolio. The percentages sound great, but are the total dollars you’re getting worth it? Frailich says.
Increase Your Income
The unemployment rate has nearly returned to prepandemic levels and many businesses are struggling to hire. While it may not be easy to increase your pay overnight, in today’s job market employees are better positioned to shop their services around or negotiate for better pay. I’ve had clients who pointed to higher inflation, as well as their job performance, to get a promotion or raise, Deane says.
You can also make extra money outside of your job. There are options to sell things you’re not using on eBay, Facebook Marketplace or Craigslist. I would take this one step further and think about how you could rent your stuff and get regular income coming in, Woroch says.
Sites where you can rent out your stuff, include:
There are also a wide variety of side jobs with a flexible schedule or that can be done from home. Pet sitting, online tutoring, or driving for a rideshare service could be done outside of your 9-to-5 job. You may be able to find freelance work at places such as Upwork or Flexjobs. Although 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.