Inflation is going up
Inflation is the rate that prices are going up. The official measurement of inflation in the United States is the Consumer Price Index, which measures the changes in the prices of all goods and services.
For the past few decades, inflation has been pretty low. From 2012 to 2021, inflation was less than 3%, but a number of pandemic-related trends combined to suddenly start increasing prices in 2021. In May 2021, inflation jumped to 5.0%, and in June 2022, it was 9.1%.
What does inflation mean to your wallet? It means that what cost you $10 in May 2020 cost $11.40 two years later. You can use this calculator to see what inflation means over different periods of time.
What’s purchasing power?
Purchasing power is just another way of looking at inflation. A dollar today doesn’t buy you as much as a dollar in 2012—your money has lost purchasing power.
Sometimes, rather than increasing the price of something, companies will reduce the amount in the package or change the packaging hoping that you don’t realize you’re getting less for the same price. This is often called shrinkflation, and it can hurt your wallet as much as inflation does.
What can you do about inflation?
There are three main areas you can focus on to try to lessen the effect of inflation on your finances.
1 Find ways to save
If you keep a budget and track your spending, this may be a little easier. But even if you don’t keep a budget, you probably have a decent idea of your spending habits. Consider the following:
- Stop buying things you don’t need—Focus on buying the things you really need and hold back on the things you want. Some of the most obvious items include:
- Food by delivery—You’re likely paying a fee and a tip on top of the cost of food. You could pick up the food yourself and save on both the fee and the tip.
- Ordering takeout—Even if you pick it up, takeout is typically still more expensive than eating in. Are there meals you can plan ahead so you don’t have to resort to takeout?
- Fancy coffee—Whether it’s just a plain black coffee or a venti oat milk chai frappo matcha latte, buying coffee out costs more than making coffee at home. Try to cut back to one per week.
- Rethink your grocery list—There may be a few things you can do to help spend more wisely at the grocery store.
- Find ways to swap expensive items for less expensive items, or mix things up in a recipe; for example, make bean chili instead of beef chili, or make it half bean and half beef. Fresh fruits and vegetables can also be pricey, so go for frozen instead of fresh when you can. Instead of bags of popcorn, try buying the kernels and popping it yourself.
- Consider switching to generic or store brands where possible, as they’re often less expensive than the brand names.
- Don’t waste gas—If you can’t walk or take public transportation, you can still save money on gas.
- Do you leave your car running when you’re not in it or when waiting in a school pickup line? If it’s more than 10 seconds, you should turn it off to save gas.
- Rather than running an errand or two every day, try combining them and go out every few days instead.
- Compare prices at your local gas stations.
- Look for ways to save energy—Some states or energy companies will do an energy audit of your house to identify where you may be losing energy. You can also try:
- Turning off lights and unplugging appliances when they’re not in use
- Buying energy-efficient LED lightbulbs
- Keeping your home warmer in the summer and cooler in the winter
- Washing clothes in cold water
2 Earn some extra income
- Increase your paycheck—With unemployment still low, you may be able to change jobs and get more money, or you may be able to ask for a raise or promotion with your current employer.
- Get a part-time job
- Create your own side gig—Do you have a hobby or skill you could turn into your own little side business?
- Clean out your closets—Look for clothing, toys, furniture, and other items you don't use and might be able to sell.
3 Keep saving and look at your investments
Inflation means that your savings will have less purchasing power over time, so you may want to consider saving more today for your future.
- If you have a retirement plan, such as a 401(k), 403(b), or IRA, look at your contribution rates to determine if you're saving enough.
- If you have investments, take a look and make sure they’re aligned with your goals. Generally, experts suggest that the longer you have until you retire, the more risk you can accept in your investment strategy. As you get closer to retirement, you should consider having less risk and more stability in your investments.
During times of inflation, control what you can control
It’s easy to feel helpless when you see prices going up, and while you can’t control prices, you can control how you spend your money. By taking a good honest look at your spending and getting creative about potential sources of additional income, you may be able lessen the stress of inflation and even save some more for your future.
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made.