Takeaways
- Inflation is the gradual increase in costs of goods and services over time.
- Inflation is mitigated by increasing your income and reducing consumption.
- Inflation unencumbered can hamper your savings and investing process.
- Budgeting can help you control costs and manage all your expenses.
- Planning for inflation is a critical part of setting successful financial goals.
Prices are on the rise. You have probably started to feel the weight of rising prices on your wallet by increased food, energy, and housing costs. Since the pandemic of 2020, inflation has been at the forefront of economic news as a central issue affecting almost every sector within the U.S. economy, including all aspects of personal finance.
What is Inflation?
Inflation is the economic term for how much more expensive goods and services become over time. Inflation is usually discussed in a year-over-year period but can be reported month-over-month. Inflation can be calculated on a microeconomic basis, for instance, the price of a carton of eggs over time. Alternatively, it is calculated for a basket of goods, such as the cost of living in a geographic area.
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Who Controls Inflation?
The Federal Reserve is charged with conducting monetary policy for the U.S. economy. The Federal Reserve’s monetary policy has a dual mandate to achieve:
- Maximum Employment
- Stable Prices in the United States
Not to get too technical, but monetary policy affects business and household spending, investment, employment, and inflation. The Federal Reserve’s monetary policy directly affects and controls inflation.
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26 Ways to Beat Inflation
While the Federal Reserve is tasked with controlling inflation on a macroeconomic level, here are 26 ways for you to beat inflation:
1. Cut Non-Essential Spending
During periods of inflation, prices for goods will rise. If you can't adjust your income (like most people) quickly, the next best thing is to cut spending on non-essential items. Limiting your spending on consumer goods will help you maintain financial flexibility and play financial defense during rampant inflation. Going on a 30-day spending fast can be a great way to jumpstart this process.
2. Revisit Your Budget
When was the last time you looked at your budget? If you don’t have a budget, you should make a budget for the first time. The primary advantage of budgeting is that it puts financial guard rails on your spending and keeps track of your sources of income.
Keeping track of your expenses will highlight when purchases are in or out of budget. This small change to elucidate your spending can dramatically curb your spending patterns.
Not all budgeting methods are the same. Personal finance experts advocate various types of budgets, including:
When budgeting for the first time, it is vital to begin the process with a budget style that speaks to you. Choosing a budget increases the odds of budget adherence. Once you have a budget, it will be a matter of adhering to your financial plan. Over 30 percent of budgeters stick to their budget each month. But a budget doesn’t have to be a static spreadsheet, it can change with your financial situation. The critical part is trying to achieve your financial goals.
3. Manage Debt Proactively
Curbing your credit card debt can decrease your monthly cash outflows. The combination of interest expense payments and high interest rates on credit cards can significantly hamper your financial flexibility during times of rising costs. That’s why getting the best credit card possible, a credit card with high cash-back offers, lower interest rates, coupon programs, and massive incentives boost your long-term financial outlook.
If you have a credit card with a variable interest rate, which is an interest rate linked to an index, your interest rate will change periodically as the index changes. Your credit card agreement determines when your variable rate can change. If you have credit card debt outstanding and increasing interest rates, this could impair your ability to combat inflation. Getting out of credit card debt and making monthly payments on time can increase your overall credit score while reducing borrowing costs.
4. Adjust Your Investing Strategy
Are your investments heavily weighted toward one or two industries, companies, or geographic regions? Now is a fantastic time to review your portfolio and ensure you are diversified. Whether you are investing for the first time or are already a seasoned investor, regularly checking in on your portfolio to determine whether you are appropriately diversified can help you navigate and mitigate risk.
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Investing in a diversified mix such as stock, bond, real estate, and alternative investments can give you an added quiver to add inflation protection.
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5. Increase Your Emergency Fund
Personal finance experts will tell you that saving an emergency fund is integral to financial security. Historically, financial advisors have recommended saving at least $1,000 to hedge against unforeseen expenses. In an inflationary environment, you should consider increasing your emergency funds.
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Advocates of higher emergency funds, such as the author of Millennial Money Makeover, suggest that you should aim to save as much as $3,000 to protect yourself against the financial downside of an unexpected bill.
6. Consult with Your Financial Advisor
Consulting with a Financial Advisor during periods of uncertainty can bring clarity and confidence to your financial decisions. An independent view of your savings, budgeting, and investing goals helps solidify long-term goals. By reviewing your current financial status, a financial advisor might be able to identify areas to modify your budget, add investments that act as inflationary hedges to your portfolio, or select insurance products that protect your financial downside.
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7. Reduce How Often You Drive
Transportation is one of your highest monthly costs. For commuters, reducing time spent on the road can help you save on fuel, maintenance, and deterioration costs. Think creatively about how to reduce your overall driving.
Employees with flexible work arrangements can ask their manager to work from home a couple of days a week or rotate one week in and one week out of the office. If you live near a coworker, consider forming a carpool.
8. Sell Unused Items
The self-storage market has been one of the fastest-growing real estate investments in the last decade. Why? Because people buy tons of consumer goods that they don’t use. Take an inventory of your belongings. Delineate between items you use regularly and those you have not used in the past year.
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Consider selling items you haven’t used or don’t need to combat inflation. Making extra money can act as a hedge against rising pricing. Marketplaces like Facebook Marketplace, Craigslist, or other platforms make it very easy to sell used or old items
9. Travel During the Off-Season
Peak travel times are the most expensive travel times. When you are considering a vacation, going against the crowd can save you thousands of dollars. For example, traveling to Vail, Colorado will be the most expensive during the winter months during ski season. Instead, of visiting Vail during ski season, consider visiting during the summer months when resorts are offering hotel, dining, and all-inclusive discounts.
10. Move Money to A High Yield Savings Account
Evaluating what types of yields your emergency fund, slush fund, and unused cash in your online brokerage accounts are currently earning can help determine if you are maximizing your money. It pays to keep track of where your uninvested cash is sitting.
The best high-yield savings accounts can add money back into your pocket without you having to lift a finger. In an economic environment with rising interest rates, banks and online brokerages are increasing their yields on various savings accounts. Make sure you are getting the best on the market.
11. Invest In TIPS
Investing in Treasury Inflation Protected Securities (TIPS) can accomplish the goal of preserving purchasing power. These marketable securities are issued via electronic form only by the Federal Government in terms of 5, 10, or 30 years and pay interest every six months. They are a lot like your typical bond. However, TIPS differ from other bonds in that the principal value of your investment can go up or down because it is indexed to the Consumer Price Index (CPI). TIPS can be held to maturity or sold before maturity.
Purchasing TIPS can act as a direct hedge against inflation. In periods of rising inflation, the principal value increases (inflation-adjusted) along with the CPI, and thus your interest payments are higher, preserving the purchasing power of your money. The minimum purchase of TIPS is $100, and the maximum is $10 million.
12. Start A Business
In 2022, there were 5 million new businesses created in the United States. New business applications have been surging as the rush to entrepreneurship gains traction. Starting a new business can be a great way to bolster your income and alleviate pressure on your budget during periods of inflation.
Starting a new online business or traditional brick-and-mortar business can produce needed income. Whether you treat your new business as a side hustle or full-time employment, as a business owner, you can make more money and utilize tax savings to increase your overall net worth. As a business owner, you have equity in a business, which you can increase in value over time.
13. Avoid Speculative Investments
Cash preservation is a fundamental investment tenant. Investing titans like Warrant Buffet constantly remind anyone seeking to become a great investor that it is not hard. The key, says Buffet is to remember, “The first rule of investing is don’t lose money. And the second rule of investing is don’t forget the first rule. And that’s all the rules there are.”
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Investing in speculative investments, which add risk to your portfolio but can offer a higher return during times of inflation may add unnecessary risk to your financial goals. Speculative investments include investments in assets such as penny stocks, precious metals, or cryptocurrencies. In current times of uncertainty, or what financial professionals call “Risk-off” scenarios, turning toward investments considered safe havens can preserve your wealth and ensure you meet the first rule of investing.
14. Avoid Name Brands Products
Do you unknowingly purchase name-brand products? To help cut back on expenses, substituting name brands for more generics can significantly add savings to your budget. You can trim dollars out of your monthly bills by focusing on the product's utility.
For example, purchasing Tide detergent may be a reflex induced by millions of dollars of advertisement spent by Proctor & Gamble. But the grocery store might make their laundry detergent that is virtually as effective at Tide for a fraction of the cost. Or consider medication expenses. Medical expenses can take up a large part of your budget, but substituting high-cost generics with cheaper medications that have the same clinical benefit could have cut down spending and saved patients about 88%, according to Johns Hopkins research published in the Journal of the American Medical Association.
15. Decrease Alcohol Consumption
Every new year brings the opportunity to partake in Dry January, a period of abstaining from alcoholic beverages. Sober October and other periods of removing alcohol from your consumption offer many health and financial benefits.
Buying alcohol at a restaurant, a night out with friends, or a Netflix binge can be considered part of the cost of the event. However, if you remove the cost of alcohol, you can still enjoy the same experience and save yourself some serious cash.
16. Consider Free Entertainment
There is free entertainment all around you. Take advantage of these opportunities. For example, explore the outdoors by visiting a local park, trail, or pool. Alternatively, you can stay indoors and check out public services like free movie screenings or go to the local library to read a new book, magazine, or movie (more on this below). Preserve your capital and reduce spending by finding free activities nearby.
17. Get Into Couponing
Paying retail is for suckers. That is what experts in the coupon industry think.
RetailMeNot, Groupon, Offers, Rakuten, and CapitalOneShopping are turning the couponing business on its head. Instead of waiting for the Sunday paper, these titans of savings offer digital coupons that you can drop into your digital checkout cart for many online purchases across the internet.
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Gamifying your savings can become a positive addition. Couponing can add money back into your wallet, increasing your purchasing power. Couponing is one of the best ways to hedge against rising costs.
18. Visit Your Local Library
Buying new books, magazines, and movies can add up over time. But if you visit your local library, you can get these items for free. Checking out a book for a couple of weeks is essentially free, and you can get your fill of premium magazines (which can sometimes be the price of a great book) for free. Don't feel like reading? Relax and enjoy a rented movie instead. You can remove unnecessary expenses and get the same equivalent experience by strategically utilizing resources at your disposal.
19. Call Your Credit Card Company
Are you struggling to pay off your credit card bills? Credit card debt can eat away at your hard-earned savings and paycheck. Because most credit cards have a variable interest rate attached to your credit card, the interest you pay on unpaid portions of your credit card debt can increase over time.
If you have credit card debt, simply calling your credit card company and asking them to either lower your Annual Percentage Rate (APR) or remove an interest rate charge can give you the financial break you need to get your credit card debt under control.
20. Negotiate Your Cable Bill
Paying for cable can be extremely costly. To reduce your monthly bill, consider negotiating with your cable provider. One of the best times to do this is around your annual renewal. You can lower your cable expense and negotiate additional bundled services (NFL Package, internet, or phone line). If you need help learning how to negotiate your cable bill, consult our script to reduce your bill.
21. Cook at Home
According to the Bureau of Labor Statistics, the average U.S. household annually spends over $3,000 eating out and over $5,000 dining at home. Dining out might be easy, but cooking at home is typically much cheaper. Get the biggest bang for your buck by preparing meals at home. Cooking at home can add hundreds of dollars back into your pocket. Try strategies like buying in bulk, swapping ingredients, and preparing large meals to enjoy economies of scale.
22. Pack Your Leftovers
Over 40% of all food in America is wasted. Think about all those half-eaten meals or snacks that could have been repurposed for another meal. Saving your leftovers may sound like a simple solution, but packing your leftovers from your dinner, lunch, or breakfast can save you money and preparation time.
Another way to cut back on food expenses and waste is to try intermittent fasting, reducing your meal sizes, or only ordering appetizers when you dine out. Implementing these money-saving habits into your daily routine won’t cost you a dime.
23. Buy In Bulk
In addition to being conscious about your spending, meal planning, and watching your food waste, buying in bulk on items you use regularly is another financial hack. Coffee lovers can load up on tubs of their favorite coffees and filters, knowing they will be utilized daily.
Buying in bulk helps you lock in the price for goods ahead of consumption and essentially acts as a hedge against rising prices in the future.
24. Check Your Insurance
Are you overpaying for insurance? Consult with a financial advisor about your insurance portfolio to revisit your existing coverage. There could be areas where you can effectively get the same coverage for less price. Swapping out high-cost insurance coverage for a broader and lower-cost alternative can add dollars back to you to save or get even better coverage.
Make sure you are getting the best insurance coverage possible. Here are some of the most common types of insurance:
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25. Cut Digital Subscriptions
The invention of recurring billing has made companies millions of dollars to the detriment of unsuspecting consumers. Digital subscriptions often go unused and unnoticed. Sneaky subscription expenses hit your credit card bill at relatively nominal values, but annually add up to some serious bills.
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Take an inventory of all your digital subscriptions – online newspapers, streaming services, gaming platforms, music providers, satellite radio, or audiobooks – and write down the monthly cost of each service. Now, multiply by 12 to get the annual cost of each of these. Consider what you could trim to add cash back into your budget.
Here are five top apps to help you cancel your monthly subscriptions:
- Trim
- Rocket Money
- Truebill by Rocket Mortgage
- Bobby
- Subby
26. Rent Your Car
Reducing expenses is one strategy to fight inflation. Another helpful, and often overlooked approach is to increase your income. If you don’t have the time to start an online business, freelance, or consult, there are plenty of ways to monetize the assets that you already own and earn passive income.
Take your car for instance. According to AAA, the average annual cost of new car ownership is $9,282. But there are opportunities to offset that cost completely. Services like Turo, Hyre, or Getaround allow you to make passive income by renting your car. Alternatively, you can use services like Uber or Lyft and pick up passengers on your way to and from work or during your downtime and make extra money.
Smart Summary
Beating inflation is possible. Whether you try to make more money or cut frivolous expenses, being financially creative can be fun and rewarding. Either approach will help you develop money moves that increase your net worth. Padding your pockets takes time and attention, but mitigating the effects of inflation is a fantastic first step for the savvy investor.
