How to Survive Inflation and Make it Work for You
Inflation is here: it’s large, it’s in charge, it’s up 8.5% as of March 2022, which is the biggest 12-month increase since 1981. Woohoo! Aren’t we lucky! But all is not (totally) lost because inflation doesn’t impact all prices equally. As we’ll explore together today, this is an uneven inflationary period: almost everything is more expensive, but some things are hit harder than others.
What Exactly IS Inflation???!!!
Before we dive into how inflation affects us on an individual level, let’s spend some time in Liz’s Definition Corner. Inflation is one of those terms everyone thinks they should know and assumes everyone else knows, but in reality a lot of us are not sure but afraid to ask because we assume everyone else knows…
I kind of knew what inflation was before this year–like in very general terms–but now I’m deeply curious about what it really is. So let’s bust out some hotttt defs on this baby.
According to this article in the New York Times:
Inflation is a loss of purchasing power over time: It means your dollar will not go as far tomorrow as it did today.
I like this definition–very simple, very easy to see how it applies to our lives. Stuff costs more but most of us still have the same amount of money to spend, which means we can afford less stuff. It’s not great, people, not great.
What causes inflation? The NYT illuminates:
In the short term, high inflation can be the result of a hot economy — one in which people have a lot of surplus cash or are accessing a lot of credit and want to spend. If consumers are buying goods and services eagerly enough, businesses may need to raise prices because they lack adequate supply.
But inflation can — and often does — rise and fall based on developments that have little to do with economic conditions. Limited oil production can make gas expensive. Supply chain problems can keep goods in short supply, pushing up prices.
Ring any bells???? The pandemic, the disruption to the global supply chain, the war in Ukraine and the resulting increase in oil prices–we kind of hit a perfect storm here for inflation.
It’s also partly our fault because:
…consumers, who collectively built up big savings thanks to months in lockdown and repeated government stimulus checks, are spending robustly and their demand is driving part of inflation.
In addition to pandemic stimulus checks, the pause on student loan payments gave a lot of folks a lot more money to spend.
I also appreciate the European Central Bank’s straightforward definition:
In a market economy, prices for goods and services can always change. Some prices rise; some prices fall. Inflation occurs if there is a broad increase in the prices of goods and services, not just of individual items; it means, you can buy less for €1 today than you could yesterday. In other words, inflation reduces the value of the currency over time.
Ok, now that we understand the basics of what inflation is and what causes it, let’s discuss what we can do about it!
Where is Inflation Headed?
No one knows. We don’t know if things will go back to normal (if this is “transitory inflation”) or if we’ll end up in an inflationary spiral where it just keeps going up and up and up. Given these polar opposite possibilities, everything I’ve written today could be TERRIBLE advice or FANTASTIC advice.
- If things snap back to normal: it will have been very wise to delay purchases and I will look like a genius.
- If inflation continues to increase on a runaway train trajectory: it would have been very wise to instead buy a bunch of stuff before prices increased and I will look like an idiot.
No one knows what will happen, certainly not me. But I will say this: it’s not going to hurt to look for opportunities to save more money. Having money saved up isn’t going to hinder you in the future. And if you must make a major purchase right now–such as a house or car–perhaps you’re getting a great deal (if inflation continues to rise). Or perhaps you’re way overpaying (if this is transitory inflation). But again, no one knows! So, best not to panic.
Control What You Can Control
You, me and our moms cannot control the economy. We cannot single-handedly fix inflation and there’s no ‘one weird trick’ for surviving an inflationary period. Given all that, don’t panic.
What we can do is be cognizant about which goods and services are increasing in price and how we might create household budgets that nimbly respond to the most egregious price hikes.
Since inflation impacts every sector of the economy, one strategy is to delay purchases and avoid buying non-necessities. This is always a good strategy if you’re trying to be uber frugal, but it’s even more true if you want to shield yourself from inflationary shrapnel.
If you haven’t taken my free, 31-day Uber Frugal Month Challenge, now’s a great time to do so and to identify what you can stop or delay buying. Again, this approach makes sense if you think this inflation won’t last forever. It’s a terrible approach if you think inflation will increase forever and ever.
Can you stop or delay buying small things like:
- Household decor and supplies
- Small appliances
- Large appliances too, come to think of it
- Toys, games, books
- I ran out of examples, but you get the idea.
Can you delay buying big things like:
The idea here is to temporarily reduce your spending in discretionary areas. This helps not just you but also the economy because inflation is basically too many dollars chasing too few goods.
Of course sometimes you absolutely cannot avoid buying–if you’ve been putting off buying a car for years and you have to buy one now? You gotta do what you gotta do. If you’re in the middle of a kitchen renovation and have to buy a refrigerator? You gotta do what you gotta do. But if you have flexibility, if you don’t have to have something right away, delaying that purchase might be wise.
Discretionary spending fits firmly into the category of controlling what we can control. Most of us don’t NEED a new purse or pair of shoes immediately. Most of us can delay some of our purchases. We can wait and see what happens while we allocate our money towards the things we cannot delay buying, such as food, childcare, medicine, etc.
Re-Evaluate Pandemic Spending Habits
Many of us changed our spending habits during the pandemic in order to cope with quarantines, stay-at-home mandates, remote work/school, the impending apocalypse, etc. And while the pandemic is by no means over, we’re in a different phase. Most of us are back to some semblance of our before-times routine or we’ve settled into our new normal. In light of that, take time to re-evaluate some of the spending habits picked up during The Dark Years.
- Restaurant take-out and delivery.
- Grocery delivery services.
- Shipping fees to avoid in-store shopping.
- Streaming services: TV, music, movies, gaming.
- Monthly subscription services: cheese of the month club, wine of the month club, ballpoint pen of the month club, magazines, work-out apps, box-o-stuff subscriptions, meal prep boxes.
- Cool stuff for the house we were stuck inside: gym equipment, indoor bouncy houses, home decor.
- Treat yourself treats: home manicure kits, home cocktail-making kits, aromatherapy candles, custom dental floss, miniature knit sweaters for corgis.
If you’ve gotten into the habit of routinely ordering/paying for/subscribing to these services, take a moment to re-evaluate and consider if you can scale these back in order to make more room in your budget for the stuff you can’t eliminate. Whether inflation snaps back or increases, re-evaluating your spending is always a solid exercise (of course, I would say that).
The Stuff You Can’t Eliminate
Food offers us the most flexibility for spending less because inflation’s not hitting all foods equally.
According to the Consumer Price Index:
- Beef increased 16%
- Meat, poultry, fish and eggs increased by 13.7%
- Fruits and vegetables rose 3.2% (in February, 1.5% in March)
I love a burger as much as anyone, but I’m not buying beef right now. You can shelter yourself from the most egregious blows by simply not buying the thing. We’ve transitioned to a more heavily vegetarian diet the past few months to avoid these higher meat, chicken, fish and beef prices. If you’re able to change your eating habits for the short-term, that’s one of the easiest ways to ease your spending. Plus, doing this shook up our meal rotation and we’ve enjoyed making some new recipes.
As always, the frugal maxims of cheap-n-healthy eating apply:
- Avoid packaged, prepared, and pre-made foods
- Reduce your meat and dairy consumption
- Buy bulk, raw ingredients:
- We recently bought 50lbs of organic whole wheat flour (for baking bread), 50lbs of organic oats (for making oatmeal) and 50lbs of dried chickpeas (for making hummus and roasted chickpeas) and the prices were similar to what they were last year.
- Cook from scratch as much as your schedule and health will allow:
- Now’s a great time to go see if there’s a bread machine, pressure cooker, Instapot, or crockpot for sale at the thrift store!
- Now’s a great time to start cooking with dried beans!
- Now’s a great time to start baking your own bread and desserts!
- Not everyone’s schedule or health will allow them to do this, but if you can do one or all of these things, go for it!
- Here’s my full write-up if you want more ideas: Our Complete Guide To Frugal, Healthy Eating
Side note: I know some folks have food allergies/specific health-related reasons for eating/not eating certain foods and I’m not implying anyone should eat things that are dangerous/inaccessible to them, so don’t come after me!
Restaurant dining is up 8%, which is yet another reason to focus on meals-at-home. We’ve been eating out less the last few months, which I desperately miss, but I also know that right now I want to buckle down and spend less.
For many of us, there’s not a whole lot we can do in this category, which is why I highlighted the potential changes to groceries. If you can drive less, do it. If you can work from home more often, do it. If you can carpool or utilize public transportation, do it. If you must buy a car, focus on fuel efficiency, but I absolutely would NOT recommend buying a car just for that reason!
In fact, if you can avoid buying a car at all–used or new–that’d be ideal because:
- Used car prices are up an eye-watering 35.3%
- New vehicles are up 12.5%
Given that, don’t turn a $40 gas problem into a $40k new car problem. Again, I 100% get that sometimes, you can’t wait any longer to buy a car. But if you can wait–if buying a new car would be more ‘nice’ than ‘necessity’–wait it on out! Caveat yet again: maybe prices continue to increase and you should actually go out and buy ten cars today. Who could know!?
If your state offers an energy audit, sign-up for one today! You might be able to reduce your energy costs OR there may be state-funded programs offering rebates/tax credits for things like installing a more efficient water heater, etc. Also check with your electric company to see if they offer any programs or rebates you can apply for.
An easy DIY route is to buy an energy monitor, which you can plug into your appliances to see what’s draining the most electricity (affiliate link).
Much like transportation, there’s not a whole lot most of us can do about where we live. If you can delay buying a new house, that’d be good, but sometimes you can’t. Sometimes you just gotta buy a house when you need a house. If you have stable housing, be really grateful for it!
Remember how I mentioned awhile back that it would be a good idea to check into refinancing your mortgage when interest rates were at historic lows? I hope you did so! For those of you with a fixed, low-interest rate mortgage, be VERY thankful for that rate. Having a fixed, low-interest rate mortgage can be a hedge against inflation because your mortgage is denominated in pre-inflation dollars while your salary is (hopefully) increasing due to inflation. Periods of inflation are one reason why I often advise folks (in the accumulation phase) NOT to pay off a fixed, low-interest rate mortgage.
Make Inflation Work for You
In addition to making adjustments to your spending, examine how you might be able to increase your income. We’re in a very interesting employment environment right now and:
What this means broadly: lots of employers are hiring and there aren’t many applicants for these jobs.
What this means for you: it’s probably an excellent time to:
- Ask for a raise from your current employer.
- Look for a higher paying job.
- Request more flexibility from your job in order to offset other costs (for example: more work-from-home days to avoid high gas prices and cook dried beans in your thrift store pressure cooker during your lunch break).
Interest rates are up right now, which is not great for things like mortgage interest rates, but IS great for things like high-interest savings accounts. Review the interest rate on your checking/savings accounts and consider switching banks if you’re not earning a solid percentage.
It’s also a good idea to ensure you have a valid credit card strategy that’s reaping rewards you’ll actually use. Here’s my recent write-up on how to do this: How I Made $712.59 With My Cash Back Credit Card.
Flex Your Frugal Muscles
A period of inflation is a fantastic time to bust out your frugal skillz. I find that my frugality waxes and wanes over the years, as evidenced by my monthly expense reports. You may have noticed I’ve tamped down our household spending since the start of 2022.
You, like me, have probably honed your ability to save money over the years and now’s your chance to utilize those capabilities. I don’t see this as a forever thing. I see this as a ‘I’m going to mindfully spend a bit less while inflation runs around like a frat boy with a red solo cup of jungle juice.’
- Don’t panic. No one ever makes good financial decisions when they’re panicking.
- Understand the difference between your fixed costs and your discretionary expenses.
- If you’d like help identifying those, take my free Uber Frugal Month Challenge.
- Look for ways to eliminate/delay/reduce your discretionary expenses.
- Explore ways to reduce your fixed costs.
- Understand which items are hit hardest by inflation and strategize ways to avoid buying those things (i.e. beef and used cars).
- Don’t pay off a fixed, low-interest rate mortgage.
- Ask for a raise or find a higher-paying job.
- Examine the interest rate on your savings/checking accounts to make sure you’re earning something.
- Have a credit card strategy that gives you rewards you’ll actually use.
- Use this time to flex/develop your frugal muscles.
- Know that no one knows what will happen and things could go back to normal or inflation could continue to rise.
What questions or advice do you have about surviving inflation?
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