Most people think inflation is 100% controlled by the federal reserve. And while that may be somewhat true (they pull economic levers and change interest rates) there’s a lot of power we have as consumers to reduce the effect that inflation has on our finances.
Here are a few ways to fight back against inflation in your personal life and lessen the pain it inflicts when rates are running rampant.
1. Know *your* inflation number.
Did you know that the headline inflation rate isn’t necessarily what you are experiencing in your personal life? It’s a helpful number to know, but it reflects many different economic categories – some of which might have no effect on your personal spending profile! So it’s helpful to drill down and see how inflation is actually impacting you and your family specifically.
The WSJ has an inflation calculator which helps you figure out how inflation is impacting you based on your specific spending patterns. For instance, if you only have one car and it’s an EV, the fact that the massive run up in fuel prices is a huge component in the overall rate of inflation doesn’t really affect you. Nor does the run up in car prices if you’re not buying a car right now.
If you really want to nerd out then you can check out the BLS CPI report which goes into great detail. Knowing which areas affect you the most will help you fight back against high inflation the hardest.
2. Reduce discretionary consumption
One of the best ways to fight against inflation is to reduce your spending. Go on a “buyers strike” of sorts, keeping more of your dollars in your pocket.
Even for items you really like, if prices are rising too much too fast it might be time to take a break from buying them. Yes, this may impact your lifestyle a tad, but chances are you’ll adjust over time and it’s better than over extending yourself financially and regretting it later.
We could sit on our hands, sit idly by, and just be annoyed at the role that inflation is playing in our economy and in our personal finances. Or we can do something about it. I like the proactive move myself!
3. Shop around and negotiate your bills
Once you’ve curbed your spending on the items that have rocketed up in price (like Slim Jim meat sticks), look for ways to clip your fixed expenses. We like to think that everything is negotiable in life, even your rent!
We’ve written a huge post on all the various ways to save money. It includes big money savers like shopping around for insurance policies, and tiny little ways to save like cutting your subscriptions and asking for discounts on everyday goods and services.
Don’t leave any stone unturned as you seek to reduce your expenses. And prioritize recurring monthly bills like your cell phone service. Saving $20 one time is nice. But removing $20 from your budget every single month moving forward is clutch!
4. Own Less Stuff
Since everything in the world requires maintenance, it’s helpful to own fewer things overall. Got a second car that you don’t use very often? Get rid of it. Garage full of tools you never use? Sell them! Everything you own and don’t use is losing value day by day. Decluttering can stop that bleeding, and maybe put a few extra bucks in your pocket at the same time.
We’re not necessarily minimalists, although we appreciate a lot of what the minimalist movement has to offer. But paring down your possessions can lead to a major happiness boost too. It means there are fewer items you have to think about fixing or repairing.
5. Delay big purchases
Have you seen how expensive airfare has gotten? It’s up almost 27% year over year!
It’s official, inflation has hit the travel sector in a major way. So why not wait for prices to come down? That Summer vacation will be just as fun next year or the year after. No need to travel during peak times when prices are ridiculous. Take a staycation or a well-planned road trip instead and save your bigger trips for when prices cool down.
For home upgrades or costly non-urgent repair projects, consider doing them at a time when there is less demand for goods and services. When supply is low and demand is high, that’s usually the most expensive time for buying. So if your big projects can wait, hold off.
You might even consider waiting to start new expensive hobbies or side hustles. When inflation is roaring, it’s generally not a good time to go “all in” on your new gold habit and buying all the expensive things that go along with it. You’ll pay more for the clubs and the greens fees!
6. Avoid new debt
When inflation is high, interest rates inevitably go up. When interest rates go up, variable interest rates increase. Credit cards, car loans, and personal loans all start to cost more and steal more of your paycheck. This is the time to prioritize paying down debts and loans, not taking on more.
If you need some breathing room, you might find some advantage using 0% balance transfer credit cards. But beware – when introductory rates expire, that’s when real pain can start!
If you are drowning in debt or have overwhelming stress, we recommend talking to NFCC.org or Money Management International. Both of these are non profit organizations that offer resources to help you create a debt payoff plan.
7. Move all your cash to a HYSA
Inflation is not just the rising value of goods and services. It’s also the devaluing of dollars over time. You could almost think of cash under your mattress as a liability, because it loses its value month over month if it’s not put to any use.
The solution is to put your cash into interest earning accounts. If you’re currently with one of the biggest banks in America, it’s time to move your money. Savings accounts at online banks like CIT, Ally and Discover pay you amazing interest rates compared to traditional banks.
Another benefit of moving all your cash out of reach into a HYSA is that it’ll stop you from dipping into your savings account. Having that money out of reach gives you less temptation to spend it!
Here’s a full post we wrote about switching banks. You should be making money from your bank, not the other way around.
8. Don’t hoard “excess” cash
Apart from your liquid emergency fund, any excess cash you have should probably be invested. That doesn’t necessarily mean long term stocks or retirement accounts. Short term savings accounts and CDs are great places to store money during high inflation periods.
Not convinced that you need to be proactive with the dollars in your possession? Here’s a chart showing how inflation crushes cash over time. (And these are low average inflation numbers – higher inflation rates hurt much worse!)
Having a large checking account balance might feel good, but it’s mathematically one of the worst things for your finances over the long term.
9. Keep investing
Another way to combat your dollars being stretched incredibly thin is to find a way to grow them at a more rapid clip. Investing in the market is one of the absolute best ways to ensure that inflation & all of the secondary expenses we’ve talked about don’t stymie your ability to build wealth.
That means that you need to continue putting your money to work for you in the markets, preferably in tax-advantaged accounts through your workplace retirement plan and IRAs as well.
Automating your finances is a great way to set up regular investing so you don’t have to think about it. When it’s out of sight and mind, you’re more likely to continue investing through thick and thin – no matter what’s happening with inflation on a macro or micro scale at the current moment.
Related: A beginner’s guide to investing
10. Increase your income.
It might be less about what’s flowing out of your accounts and instead you should be focusing on what’s flowing into your accounts. That means focusing a little more intently on collecting bigger paychecks.
Making more money isn’t necessarily the right prescription for everyone. You might love your job and be making enough to meet your financial needs. That’s totally fine. But if you find that it’s harder to keep up with rising prices, increasing your income is important to consider.
The good news is – getting a pay raise or changing jobs is easier now than it normally is thanks to the killer job market we’re in. Also, there’s a plethora of gig economy jobs and even side hustles for couples that you can take on for additional income outside of your regular job.
Pro tip: If you begin a new side hustle, try to open a specific credit card for that side hustle too. It’ll separate your personal expenses for easier accounting/tax planning, and earn you sweet rewards too!
The Bottom Line:
Inflation is attracting all the eyeballs right now. And understandably so. Every single one of us is noticing higher prices all around us. And it’s tough to know how to react!
But it’s important to pay attention to the things we can control. While none of us can make a dent in the overall rate of inflation, our personal choices are the biggest factors that impact what we pay for goods & services. And there are legit changes we can make in our own lives to fight back.
To summarize your next steps… Be mindful of your spending, analyze your bills, declutter your life, do some financial spring cleaning, pay off consumer debts, and move all your cash into investments! Easy, right? 😅
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**Photo by Yassine Khalfalli on Unsplash
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