How to Manage Inflation

By Shelley Murasko

The jury is still out on whether inflation will keep rising and just how long it might last. While there are signs that supply chain challenges are easing, the Russian invasion of Ukraine is likely countering the improvements by pushing oil and energy prices to record highs.

Not only does the cost of oil affect what you pay at the pump, it also trickles down into delivery costs, packaging, and raw materials used to make products.

Here in the U.S., there are steps you can take to manage your money during these difficult times. While the list below is not completely comprehensive, it offers several strategies you can use to reduce your inflation anxiety.

Put the Lid Back on Spending

Now that we’re coming out of the COVID lockdown, we Americans are ecstatic about getting our lives back. This has led to more travel, shopping, entertainment, and eating out than we might normally pursue.

If you’ve been making up for lost time with frivolous spending, however, it might be time to revisit your spending plan. In times of inflation, buying things you don’t really want or need can have a huge impact on your financial health. So, take the time to assess your spending, and trim any waste you uncover.

Track Your Spending

One way to assess your buying habits is to record your spending for a few months. Do this by writing it down on paper, logging it in an Excel spreadsheet, or printing off credit card statements. This will allow you to identify your biggest ticket items. Take this up a notch by using apps like YNAB (You Need a Budget) or mint.com.

By tracking where your money goes, you’ll be more likely to pinpoint areas you can improve and curtail spending that doesn’t align with your values.

Let’s say you bought a subscription for a video streaming service that made sense when you were stuck at home during lockdown, but now you don’t use it much anymore. You may want to consider ending the service so you can keep that money in your pocket. Or if you still use the service and want to continue it, call your provider to make sure you’re getting the best price.

Sell Your Unused Possessions

Another area to look at is your garage. Over the past two years, did you buy items that were useful while working from home, but now are sitting idle? Perhaps you have an e-bike or a work desk that is collecting dust. If you do, now is a great time to sell it at a profit.

What about the extra family car sitting in the driveway? It could provide another opportunity to make some money. With used cars in short supply these days, many are selling for thousands of dollars more than normal. It could be a quick way to fatten your wallet!

Manage the Psychology of Spending

As you buy an item or service, you may want to revisit why you’re making the purchase. We all take social cues from others that urge us to spend more. Just remember that your friends and neighbors don’t care as much about your clothing, makeup, kitchen appliances, or car as much as you think they do. If you actually value an item and have money in the bank to cover the expense, then feel free to proceed. If you’re only considering a purchase because you want to impress others, that’s a big red flag to rethink your buying decision.

Many of us see someone driving a Tesla or Porsche and dream about being the one in the driver’s seat. Yet very few of us look at the driver and think, “Wow! That guy or gal is so amazingly cool.” Therefore, if your goal in buying the latest model is to make an impression on others, pause to consider if it’s really something you need.

Another strategy is postponing a purchase, especially if it’s directly affected by current supply chain issues. Due to the chip shortage, for example, items like cars, appliances, and electronics are harder to come by. Thus, it might make sense to hold off on this type of purchase until supply chain issues resolve. In fact, waiting might lead you to change your mind on the purchase altogether, which could save you from regretting a purchase a few weeks or months down the road.

Scratch the Itch, but Don’t Break the Bank

We all have temptations to buy items that are wants and not needs. Finding ways to fulfill the impulse of buying an experience or product without overdoing it can shave wasteful dollars.

For example, if you love to travel, perhaps going somewhere close to home can satisfy your desire. San Diegans are lucky to live in such an amazing part of the country for local travel.

Whether you plan a visit to Catalina Island, Idyllwild, or Joshua Tree, you’ve got a wide variety of options when it comes to embarking on your next adventure. Interested in local treasures? Consult the Hidden San Diego website at Hidden.SanDiego.net to fill your days with fun!

If you have a longing to buy a certain car, perhaps you can scratch the itch by renting the model first. Websites like Turo.com can be fantastic for finding all types of interesting cars while traveling away from home or cruising in your local area.

Have an affinity for a little retail therapy after a bad day? Find something gently used at Poshmark.com or check out local thrift stores like My Sister’s Closet.

Lock in an Ultra-low Mortgage Rate

As inflation has proven to remain high, the Federal Reserve is on the path of increasing rates with a quarter point raise in March and six more hikes planned this year. This is leading to higher rates on all debt, including mortgages, car loans, and school loans. While buying a new car or house right now is not necessarily a great deal, refinancing the loans you already have could save you thousands.

If you’ve been waiting to lock in a lower rate, now is the time to act as rates seem positioned to go higher. Shaving at least half to a full percentage off your current rate can make this a worthwhile strategy.

Hedge Inflation with Investments

Globally diversified stocks and bonds have produced good returns in periods of high inflation. Investors worried about runaway inflation can hedge their risk with additional investment types, including Treasury Inflation Protected Bonds (TIPS), I-bonds, gold and other commodities.

Of course, hedging can have its own risks, but the tools are there if you choose to use them. As always, selecting one path over another requires clarity about your goals. The best defense may well be what it has always been: a well-diversified, risk-adjusted, goal-based portfolio.

Put More Money to Work

Now more than ever, allowing excess sums of money to sit in cash weakens your purchasing power every day. While it’s wise to have an emergency fund, it’s also a good move to smartly invest your surplus money. This will strengthen your wealth over time.

For working professionals, covering three to six months of your spending needs in cash is a good rule of thumb. For retirees, one to two years of cashflow from your savings accounts is the common recommendation. Ultimately, you should choose whatever amount allows you to sleep well at night. Just know that the downside is a guaranteed loss of return.

Take Stock of Your Income Streams

Part of the inflationary pressure we’re currently experiencing is due to higher wages. Knowing this, perhaps it’s time to negotiate for a higher salary at work. In addition, your pension and social security might increase in line with inflation. Knowing whether this is the case might give you peace of mind.

If you’re unhappy in your work, this year might be the perfect time to pursue a higher-paying job. According to Trade-Schools.net, the fastest-growing jobs from 2016 to 2026 include solar energy technicians, home health aides, physician assistants, nurses, statisticians, physical therapist assistants, and programmers.1 If you’re poised for a change, consider investing in yourself and broadening your career horizons.

Own Your Home

Depending on your local area, this might not be the time to buy a house. Home ownership, however, is considered a smart way to hedge inflation in the long run, especially if you have set yourself up with a 30-year, fixed-rate mortgage that establishes your monthly housing cost for years to come.

If you already own a home and are willing to downsize, moving to a 55+ community, relocating to a less desirable area, or selling your current home and buying a new one might give you a sustainable edge.

If you’re currently renting, know that you’re likely going to see higher fees soon. A prudent move might be buying a condo or small home where you can rent out a room.

No Crystal Ball on Inflation

No one knows for sure what is going to come of the current state of inflation. Rather than worry about what the future may hold, act now on the things you can control to ease your worry during these inflationary times.

If you have questions about this article or need guidance on financial matters, we’re happy to help!

Source:

1. Trade-schools.net. (Apr. 12, 2022). “31 High-Demand Jobs in 2020 for Almost Every Type of Person.” Trade-schools.net.