By all measures, current inflation rates in the United States have seen the fastest annual increase in more than 30 years, and concern rises each day as the cost of goods and services increases.
The current growth rate of 7.5% in the Consumer Price Index has taken an estimated average of $200 per month out of consumers’ pockets, and some of the factors causing price increases may continue for a while.
Given these stresses, how can consumers lessen the impact? More careful budget planning and thoughtful spending are the best places to start.
Here are some trends and tips to help understand what to expect and how to cope.
Inflation may not subside soon, so it’s important to re-examine your monthly budget with a longer-term focus. Emphasize savings first and look carefully for opportunities to reduce spending.
- Shop at stores that generally offer lower prices
- Buy in bulk and stock up on sale items when available
- Choose generic or store brands
- Look for coupons, most of which are online or automated now
- Consider alternatives to pre-packaged meals
- Look for lower-priced alternatives to meat, or choose lower-quality cuts and marinate them
- Replace eating out with gatherings at home or at a local park
- If you work outside the home, start packing your meals, snacks and drinks
Saving on Gas
- Consolidate your trips
- Set up carpools
- Work remotely when possible
Saving on Housing
- With few deals to be found right now for purchasing a home, remain patient
- Shop hard for apartments and evaluate multiple options
- Wait on large home-improvement projects
- Reduce electricity, gas and water usage–adjust the thermostat, weatherproof, and look for additional tips, rebates and resources from the utility companies
- Wait to buy a new or used car until more inventory is available in mid 2022 or 2023
- Clothing and electronics are not as impacted by inflation, so deals can still be found
- Shop numerous websites when making purchases. Don’t automatically default to Amazon, but check Walmart, Target and local discount shopping venues for the best prices.
- Use a shopping survey mobile app
- Review and reduce automatic subscriptions such as for streaming services and other products
- Use rewards programs, such as cash-back credit cards
Most important, remain calm, take firm control over your budget and spending, and be assured that this inflationary period too shall pass.
And What About Interest Rates?
Finally, a few thoughts on managing the impacts of rising interest rates. Although mortgage rates are already climbing, they’re still relatively low and shouldn’t dissuade you from purchasing a home if you find a reasonable deal and can afford it. You may also still look to refinance your home if your current rate is above 4%.
Auto loan rates will trend upward, but more slowly, and should be less of a factor in your decision right now than the price of cars. Credit card rates are higher, and those indexed to market rates will move up further. So it’s helpful to pay down or refinance this debt and look for savings alternatives. As always, look for ways to improve your credit score.
If you are saving money, savings rates will likely be sticky with not much initial movement. But, you can protect your purchasing power and investment returns by investing in inflation-protected securities such as inflation-indexed bonds or Treasury inflation-protected securities. Seek help investing from a trusted financial advisor.
Doug Wright is chief financial officer of Mission Federal Credit Union, the largest member-owned, not-for-profit financial institution exclusively serving San Diego County.