Have you noticed the price of your monthly expenses rising even though you are generally buying the same things?
I rather enjoyed this observation that says: Gas isn’t getting better, your money is just getting worse.
These are tangible impacts of inflation. At its simplest, inflation refers to the declining purchase power of a currency. In other words, the list of things you could buy for ten dollars yesterday is less than what you can buy today. Remember when you could buy a 20 ounce soda from a vending machine for a buck twenty-five? Now you’re lucky if you can get one for under two dollars.
The current period of inflation did not come as a complete surprise. Everyone expected prices to spike with the winding down of the pandemic, especially in the areas of travel and tourism, but the current condition is exacerbated by the persistent supply chain crisis and the Ukraine invasion. While it’s possible the situation in Eastern Europe could settle into an uneasy compromise, the problem with the supply chain could be a prolonged issue because of the competing industries that have to align before things get back to some sort of normal.
At the time of this writing, the United States inflation rate is hovering somewhere above 7.5%. By the time the post is released, it’s very likely the rate will have surpassed 8%. As we’ve previously discussed, you’re lucky to find a savings account that will yield 0.5%.
So, if the inflation rate is so high, and if interest rates are abysmal, what can you do to slow down the evaporation of your cash?
What I’m going to share are a few strategies I’ve adopted to try to stretch my dollars in the current economic climate. I call it “fighting” inflation as opposed to “beating” inflation, because inflation is a perpetual force that erodes our spending power. No matter what you try, you’re still going to pay a lot for milk and bread.
My Everyday Approach
I’ve been accused of serving up ideas that are out of reach for the average person.
It’s a load of horse manure. Everyone is capable of setting aside a little money and turning that little stash into a healthy investment. We’ll talk about our competing philosophies on money soon enough, but let me start by offering a list of everyday strategies I’m using to try to keep pace with inflation.
- Finding grocery stores and delivery services with the most competitive prices
- Choosing store brands over name brands where quality is not compromised
- Using promo codes where feasible
- Stretching takeout orders into multiple meals
- Consolidating errands into as few trips as possible
- Leaning on tools like Google Flights to scout better rates for personal travel
- Departing from hotel loyalty programs where better rates make sense over scoring points
- Strategically using the right credit card to maximize points
Looking at this list, what should become immediately obvious is that these strategies are not inflation-specific. In fact, they’re strategies any “average person” should be using as a matter of rule, but I highlight them for two reasons: 1) we seldomly stop to consider how we waste our money; and 2) it becomes all too easy to accept paying more for things if our spending goes unchecked.
Remember when you could buy a decent lunch for under ten dollars? Now you’re more likely to spend closer to twenty. That’s assuming you’re picking up your order and not relying on a delivery service to tack on various fees. Uber is especially guilty of claiming to offer steep discounts but ultimately charging the same as you would have paid without the alleged promotion.
It may not seem like a big deal at first glance, but if prices slowly creep up across the board and your paycheck remains the same, it won’t be long before you start to feel the squeeze. After a while, spending 30 or 40 dollars on food delivery stops feeling so shocking, because it’s what you’ve grown accustomed to paying. And then you wonder where all your money goes by the end of the month.
Double Down on Investments
In a perfect world, investors buy low and sell high. Right now, the stock market is floundering. Rather than shy away from a weaker market, my first step was to increase my contributions toward retirement, much of which is invested in index funds.
If the move sounds counterintuitive, it’s only because financial news does a great job of spooking people into pulling their money out of the stock market. They need to turn a profit, and it just wouldn’t do to tell their audience to stay the course. That sort of advice is not exciting, but here’s a secret: personal finance, if done right, is supposed to be boring.
I’ve previously written about my preference for the pay yourself budget strategy. I still follow that strategy, because I have too much going on to faithfully keep tabs on every dollar coming in and going out. By redirecting more money toward my retirement, I keep myself on a tighter budget, because the money gets pulled from my pay check. I can’t miss what I don’t see.
Reposition Emergency Funds
It’s always good to have cash on hand for those times when life throws a curve ball at you. This is where emergency funds earn their keep, but during an inflation, you don’t want those three to six month’s worth of savings to erode.
I took the bulk of my emergency funds and parked them in Series I bonds, which are currently earning 7.12%. This was a risk, because the funds are not accessible for twelve months, but in the event the wheels fall off my cart, I would lean on my short-term savings to recover from the unexpected blow. My short-term savings are always the first line of defense against emergencies.
Another strategy could have been to move emergency funds into a Roth IRA. These are after tax dollars that could generate much greater earnings than your average savings account. The reason I opted not to use a Roth at this point in time is because I can’t afford to experience a dip in the investment if I need the money at a moment’s notice.
It’s always good to have cash on hand. I just don’t want so much cash that I risk losing value on it to inflation. When it comes to my long-term emergency fund and my short-term savings, I want enough liquidity to be able to access the funds with minimal penalty.
We ought to be diversifying investments anyway. Even under the best of economic circumstances, we should never trust any one investment vehicle to grow our hard-earned money, but inflation periods make it especially critical that we take whatever spare cash we can get and make it work harder for us.
You’ve read about my decision to jump into real estate by way of Fundrise. I’m still seeing good returns on that decision and strongly encourage you to ponder it for yourself, especially after the platform began accepting investments as low as $10. Here’s my affiliate link if you’d care to throw me a little change at no additional cost to you.
In fact, I’ve grown quite fond of Fundrise. Current investors have been given brief windows to buy into their Internet public offering, which is a modern take on the traditional style of initial public offering. I bought a handful of shares separate from the money I had already invested to purchase real estate. This is one more way of diversifying my investments.
While I’m on the subject of real estate, any vague notions I may have harbored about buying a house right now have gone out the window. I know people who have paid $60,000 over the asking price. While this may be at the deep end of the pool, I have zero interest in blowing up any equity in a future home by paying more than is necessary.
Similarly, now is not the time to buy large ticket items like new cars.
I’m also getting closer to buying into cryptocurrency. You know I won’t jump into anything before doing a lot of research, especially if I’m going to bring that recommendation to you. This is an investment I will contribute the least, but I believe I may have found a platform I feel comfortable investing 10% or less of my available funds.
Update: I read a view from Warren Buffett that says buying farm land lets you produce crops. Buying an apartment building lets you provide housing. Buying bitcoin, however, does neither of these, and admittedly, that gave me pause. It doesn’t mean I won’t buy into some form of cryptocurrency, but looking at an investment in terms of what it can yield does put things in perspective.
If you reached the end of this post and feel disappointed that I did not share something more profound, it’s because the whole point is to be careful about how you preserve your buying power. Part of this means choosing the right budgeting strategy, sure, but to a large extent, you ought to be a careful spender as a matter of habit. Inflation just gives us an added incentive to work harder at preserving our cash value.
We’re going to feel the most significant impact of inflation on our savings. We presumably set up our savings to fund specific goals, and the last thing we want is to have to spend more time saving up money because inflation quietly ate away at our cash value.
Inflation is stealthy. It’s all too easy to begin spending a little more on Uber and Lyft rides. Now I’m not saying you should not make use of these services if you need them, but this internal justification to spend a little more is what often causes us to spend more than we bring in.
Come up with a saving strategy you can live with. Stay dedicated to that strategy, even when the economy experiences stomach-dropping dips. It will inevitably get better, and when it does, you’ll be in a great position to benefit from the market rally.
Don’t let inflation eat away at your hard-earned cash.
What are you doing to fight inflation? Share in the comments! We should all be looking out for each other’s livelihood. If inflation does anything positive, it should be the one thing that makes talk of money less taboo.