Rising inflation rates in the US are starting to affect our budgets. To get a better idea of how inflation is impacting you, compare your spending during the first few months of 2021 to the first few months of 2022. You will see what categories impacted you the most.
We are seeing the highest inflation rate from the past 40 years at 8.6%. A lot of this is due to the fact that there is a supply and demand issue, partly stemming from the shutdowns and partly stemming from issues that were not rectified because of consequences of the shutdown. Here are some tips to limit inflation’s impact on your life.
What is inflation?
Inflation is the decrease in purchasing power of a particular currency.
In layman’s terms this means you receive less bang for your buck. It includes an increase in prices usually of consumer goods. Another thing you may see is that the price may stay the same but the product itself may become smaller. You will often see this with cereals, chips, and various bottled products such as soaps; something that was once 35 ounces may be the same price but suddenly the package only contains 32 ounces.
Keep in mind inflation affects everyone differently. It depends on your family size, career, lifestyle, assets, and other factors.
What does inflation mean for you?
You need to review various aspects of your life and budget.
First, there is always the option to approach your employer about a cost-of-living (COL) raise. Your employer may oblige, but keep in mind the average raise, even for COL is only around 3% which still leaves you having to make up for that 5.6%.
You can also negotiate a higher salary or even consider changing companies or positions. It is no longer frowned upon to job hop so don’t be afraid to see what is out there.
Next, you need to review your budget. You may find that various categories need to be increased such as gas for your car and groceries/household supplies. If you keep going over budget, don’t panic and read this blog post.
With gas reaching over $5-$6 in some places you may want to see if ridesharing is an option. Maybe if you are going to school or work with someone who lives near you, you can ask them about carpooling to save a little on gas.
You can even ask your employer if you can work from home 1-2 days a week to save on gas (if that is possible for your career).
For groceries you may want to explore different options. What do I mean by different options?
- If your diet is high in meats consider cutting a day or two to meatless meals.
- You may also want to see if cost per product is less if you buy in bulk and store or freeze the extras.
- Find meals/ingredients that can be used more than once (for instance making a roasted chicken and then using leftovers to make chicken salad and chicken soup).
- Explore lower cost stores in your area/shop deals. Maybe it does not make financial sense to buy all your foods from one store, but rather you should shop at various locations.
- Look online for delivery services that may save money, ei. Imperfect Foods.
- Meal plan/shop your panty
- Download apps/reward programs to grocery stores for better savings
- Use delivery/pickup services so you are less inclined to impulse spend (and sometimes online prices are better than in-store!)
What will happen?
Financial experts have various predictions but many think that this bout of inflation will peak this summer and then level off towards the end of 2022. I always take these predictions with a grain of salt. Just know that you need to be prepared for the increase in expenses to stick around for a little. Until you get a bearing on how inflation is affecting you, consider adding to your savings and cushioning it a little more.
What else should you do?
If you haven’t done a money audit recently, now is a good time. You need to see how your budget categories have changed and adjust your budget accordingly. Track your expenses for a month to see what has increased and by how much.
Make sure you can cover your daily and monthly expenses first and that you have your fully-funded emergency fund but then continue investing. You will need your investments even more with the increase in inflation.
Review Your Subscriptions
There might be some subscriptions you can cut temporarily to give you some more breathing room. When you do your money audit, you should be able to see all of your subscriptions and which you don’t need right now. If you still need it, contact customer service and see if they have any promotions or can give you a discount.
Negotiate Your Bills
If you haven’t negotiated your bills recently (or even your salary) now is a great time to do that. Some common expenses to negotiate are car insurance, credit card interest rate, phone, internet, home insurance, and subscriptions.
Increase Your Income
I know this is easier said than done but even if you can find a part-time job or side hustle that brings in a few hundred dollars a month, that can significantly help. Although you probably can’t increase your salary overnight, it is a good time to ask for a raise (within reason) with your current employer or explore other options.
If you need help creating a financial plan you can actually stick to long-term and know how to adjust your plan when things change (or when inflation increases), join my signature program Flourish FinanciALLI. Click here to learn more.