Eight Ways to Make Inflation Sting a Little Less
If your wallet feels a little emptier lately, inflation is probably to blame. The current national rate of inflation, as of last week, sits at 8.5 percent—meaning a cart of stuff you bought last year for $100 now costs $108.50. And a new Consumer Price Index report released in September showed that prices are continuing to soar, worrying consumers and investors.
There’s no sole reason for this: Supply chain issues, economic packages that put more money into the pockets of consumers and businesses, a housing shortage, and Russia’s invasion of Ukraine have played a factor in rising prices, which have shot up everywhere from the grocery store to the gas pump to our favorite restaurants.
Beyond just driving up the cost of goods, inflation can make it harder to make decisions around how we should be saving, spending, investing, and paying off our debt. Should you put off buying a car right now? Is it time to get rid of all your streaming subscriptions? Here are a few ways to think about dealing with inflation.
Before you can start making smarter decisions with your money, you have to know exactly how much money you have, and where all that money is currently going. “Just have a pulse on your money,” says Lindsey Bell, the chief markets and money strategist at Ally. “It becomes a budgeting exercise first and then a prioritization exercise next.” Budgeting apps like You Need a Budget and Mint can help you organize and track your finances, but banks have also gotten very good at categorizing all your transactions, so you can often just log into your bank account and examine your spending there.
People are pretty good at budgeting around big, recurring expenses like rent or mortgage payments, car payments, and groceries. It’s the smaller recurring expenses—streaming services like Netflix and Spotify, file-hosting services like Dropbox or iCloud, meal kit services, gym memberships, newsletter subscriptions—that can add up quickly.
Decide what’s important to you and adding value to your life and get rid of everything else. Apps like Rocket Money and Trim can help you identify all of your recurring subscription services and cancel the ones you don’t want anymore.
You can also save money at the grocery store by doing things like cutting back on meat, which has seen some of the most dramatic price increases, and switching to store brand labels. Just be sure you’ll eat the things you’re buying instead. “The risk is, the more you get out of your routine, the more likely you’ll have waste,” says Zach Teutsch, a certified financial planner and managing partner at Values Added Financial. If you’re a picky eater, Teutsch suggests it’s much more efficient to lean into your routine and buy the stuff you like the most. That way, fewer things will end up in the garbage.
Inflation will likely cause your expenses to rise much faster than your income, so when money is tight, it’ll feel much harder to save for the long-term. Two strategies are most important to maintain: having enough in a savings account for emergencies, and, if it’s available to you, hitting your employer’s 401(k) match number.
But you don’t need to stuff your savings account more than you would otherwise, Bell says: “You still want to have that three- to six-month emergency fund saved. But you don’t want to have much more than that in a savings account because interest rates are still really a lot lower than what inflation is at 8.5 percent.”
But if you’re finding it hard to save, it’s time to tackle the other side of the equation: income.
When things cost more, it’s tempting to lean on your credit card. In short: this is a terrible idea—the average card interest rate is 19.13 percent, much higher than the rate of inflation. If you’ve got debt, it’s worth being strategic about how you pay it down: start with high interest credit card debt and make minimum payments on other types of debt you might have.
“Credit card companies have really smart and savvy people who are constantly running experiments to figure out how to make it feel appealing and easy and satisfying to use credit cards and accrue credit card debt,” says Teutsch. “I would just encourage people to be hyper-vigilant.”
There are also ways to use credit cards in your favor, rather than allowing them to pull you further into debt.
“Credit cards are one of the easiest financial tools you can switch from,” says Bell. “When it comes to credit card debt, you can easily roll [your balance] over for a better rate somewhere else. Having a pulse on what different banks or credit card companies are charging can benefit you over the long haul. Not only that, you can also call your credit card company and ask if there’s anything they can do to help you—maybe they can give you a break by a percent or something like that.”
Now is not the time to make risky bets in a volatile stock market. Invest with the long-term and retirement in mind by focusing on contributing to your 401(k) and investing in safer assets, like broadly diversified index funds and low-cost target date mutual funds.
“Investing should be boring,” says Teutsch. “Avoid apps that make it seem fun and interesting because they’re trying to get you to do something that’s not in your interest.”
In other words: if you’re concerned about inflation, maybe hold off on the cryptocurrency and meme stocks.
“I always tell people that if you want to put a little bit of money in those things, it’s fine,” says Bell. “But you need to have the mindset that it’s fun money and that you could lose that money.”
Teutsch agrees. “Anything that has the capacity to get you rich quickly also has the capacity to make you lose all your money quickly,” he says.
If you need to buy a car or a house during a time of high inflation, try to take a longer view.
“A home is a long-term purchase,” says Bell. “I think we’ve gotten into this mindset over the last five, 10 years that we need to get a deal and make a lot of money on it. Especially over the last couple of years when housing prices were rising 20, 30, 40 percent—that’s not normally what housing prices do.”
In other words, while home-buying is an investment, it’s hard to time the housing market in the same way that it’s hard to time the stock market. There’s no way to know exactly what home prices will look like next year, so if you need a house, it’s better to find a house within a price range you can afford now than wait it out for a deal that may never come. The good news is that inflation has caused the red hot housing market to cool, so there’s currently less competition.
When it comes time to close a deal on a home, just make sure that your mortgage payments are manageable rather than hoping you’ll be able to refinance down the line. “I would just encourage people to be picky and make some offers,” says Teutsch. “The thing that I would never encourage people to do is buy a house that doesn’t quite work now and assume they’ll be able to refinance. If you can’t afford it, don’t buy it.”
When it comes to cars, Teutsch suggests considering what you need and value. He says when he grew up, he was a car nut who obsessively read car magazines and thought about how he’d get his dream car one day. He then found himself on the road traveling for work and realized that he didn’t need the perfect car—just a reliable one.
“I realized that I didn’t really care about which car I got,” Teutsch says. “I just wanted a car that had cruise control and would be boring to drive. And it saved me a huge amount of money over the course of my life.”
Cutting back on expenses will only get you so far. When money is tight, one of the best things you can do is figure out how to get more money in the door, whether that’s through negotiating a raise, changing jobs, or finding a side gig.
“It’s important for people to understand the value they bring, because it’s a favorable labor market right now, which means that a lot of people can get raises,” says Teutsch. “Sometimes that means exploring other opportunities. Sometimes that means figuring out how to advocate for themselves internally. Sometimes that means helping to make sure that if they don’t have a union in their workplace, they get one.”
Bell says it’s always good to study the job market and see what’s out there. “Job switchers have been able to get paid more for the same job when they go to a competitor than if they were to stay and be loyal to a company where they might continue to make the same salary,” she says.
In addition, having a job offer in hand is good leverage to convince your current employer to give you a raise, because they don’t want to go through the headache of having to find another candidate and spend the energy to train them.
If getting a raise or changing jobs proves difficult, freelancing on the side is another way to bring in more money. Just use your spare time wisely, and be aware that some gig economy work, like driving for Uber or Lyft, might not be ideal. After accounting for things like the cost of gas, insurance, and car maintenance, you may be bringing in far less than you think.
If the pandemic taught us anything, it’s that many of us value time with the people we care about over things. Activities—like going for a hike with friends, say—can be fun, and have the added benefit of being free.
“It’s good for the body and really good for the soul to get outside more,” says Teutsch. “One of the best ways to get our budget under control is to just hang out more with people who spend in good ways—who want to camp for the weekend rather than stay in a very fancy hotel.”
Bell also wants to put things in perspective.
“Inflation is such a hot topic right now, but normally a little bit of inflation is actually a good thing for the economy,” she says, explaining that it usually helps to drive economic growth. “If it’s at 2 percent, that’s okay, and nobody talks about it because it’s just par for the course.”
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