Are you feeling the pinch of inflation in the present economic environment?
Well, it turns out, you are not alone. We are all facing the prospect of increasing costs as the prices of groceries, gas prices, and dining out soar. Higher interest rates trickle down to consumer products like loans and mortgages when borrowing costs rise, making them more expensive.
Unfortunately, there is no silver bullet to escape growing living costs. Most people cannot simply move to a cheaper apartment or cease going to work to avoid tanking up their vehicle. However, financial advisors propose a few ways for clients to mitigate the impact of inflation on their bank accounts and investments.
The first step is to determine where your money is being spent. Examine your most current credit card and bank statements to discover how you’re spending your money and how it compares to a few months ago. Once you’ve classified your expenditures, it’ll be easier to understand where you can cut back or redirect additional income.
While we do not know what future inflation has in store for us, by transforming how we spend, where we keep or invest our money, we can cope with the inflation better.
Here are some other ideas for increasing your savings during inflationary situations.
Consider investing for long-term gains
Short-term funds, such as an emergency fund, should be stored in a savings account, but if you have resources that you don’t plan to use for a year or longer, consider investing or purchasing a government bond.
Challenging times with rising prices may appear to some to be the worst time to invest. Why would you invest in stocks when your monthly expenses are increasing? Another way to look at it is as follows: whether you’re investing for retirement or other purposes, you must make consistent contributions no matter what’s going on in your financial life. After all, one of the fundamental reasons to invest in the first place is to beat inflation by maintaining and growing the purchasing power of your savings over time.
Keep an eye out for shrinkflation—as well as shadow inflation
According to Rob Stevens, a financial planning consultant at TIAA, be on the lookout for shrinkflation, which occurs when corporations provide customers with less of their products for the same or higher price. This is especially common at the grocery store, and that could mean fewer pretzels in a bag or fewer rolls of aluminium foil. To mitigate this, utilise generic products, which are often slower than branded ones.
Another type of inflation to be careful of is shadow inflation, which occurs when the quality of a service or product deteriorates. A hotel, for example, may no longer supply complimentary clean towels every day or a large continental breakfast. These quality changes are difficult to quantify and are not included in government inflation data. There’s also not much you can do about shadow inflation other than be aware of it, so you don’t get slammed with additional fees, making your restaurant bill even more expensive.
Reduce Interest Rates on Other Debts
You may be budgeting for debt repayment for credit cards, student loans, or other lines of credit in addition to a mortgage. Paying off debt, or making it less expensive, might help when increasing costs take effect.
If you have credit card debt, check with your bank for 0% APR balance transfer offers or low-rate personal loans. A 0% balance transfer allows you to pay off your debts over time and interest-free. Meanwhile, personal loans might help you combine high-interest bills at a reduced fixed rate. Refinancing student loans may enable you to obtain a reduced interest rate, making monthly payments more bearable. However, keep in mind that converting federal loans into private loans entails giving up some benefits and protections.
Increase your earnings
Finding ways to make extra money can help alleviate some of the stress caused by rising living costs. If asking for a raise is not an option, you can explore other sources of money. Tutoring, utilising your automobile for private rentals, selling stuff you no longer use, or making money from a passion like baking are some examples. Aside from these side hustles, which may consume too much of your time, one option is to work your money harder through a diverse portfolio of investments. Finding ways to increase your income will help you get through and budget for periods of high inflation.
Selling items you no longer need is one option for increasing revenue, as is attempting to negotiate a raise with your existing employer. Changing occupations to earn more, taking on a second or part-time job, and starting a side hustle or a side business are other options to increase your income.
Increasing your income could be one of the most effective ways to protect yourself and your budget from the long-term consequences of inflation.
Remove Extraneous Subscriptions and Fees
It’s probable that you’re wasting money on monthly subscriptions or streaming services. This may not appear to be much, but a little each month builds up too much in a year. If you’re looking to decrease costs in the face of rising prices, cancelling unwanted subscriptions is an excellent place to start. If you don’t have time to search through all your subscriptions, these personal finance applications can help. Some apps can even assist you in negotiating better prices on cable, internet, and cell phone services to save money or minimise bank fees.
Regardless of whether inflation rises or falls, it’s a good idea to keep an eye out for strategies to maximise your savings.
Inflation can make household budgeting more difficult, and it can be distressing when growing prices appear to have no end in sight. Knowing how to plan for inflation begins with examining your fixed and discretionary spending to determine where you can cut back. Then, seek other ways to save, such as refinancing debt at a reduced interest rate, lowering your home energy bills, and switching insurance providers. Finding strategies to increase your revenue might also help you make up for any budgetary shortages caused by rising prices.