Marcus Marion, CMA™ You may have noticed a steady increase in the prices of groceries and energy bills in the past few years and probably wondered if your favorite convenience store or energy supplier is trying to rip you off. There’s no need to fret, as everyone else feels the same pinch.
But perhaps you need to be worried because the general rise in commodity prices is due to inflation. And if recent statistics are anything to go by, the trend will unlikely slow down soon.
This article looks at the seven top strategies to save money when the effects of inflation begin to bite. But first, let’s start from the beginning by familiarizing ourselves with this term.
What Is Inflation?
Inflation is an economic situation characterized by a steady increase in the cost of commodities over time. The term is commonly applied concerning the price of basic needs like food and clothing. However, during inflation, the cost of everything goes up. That includes energy bills, real estate, and even interest rates financial institutions charge.
A considerable degree of inflation is normal over time. For instance, it’s understandable why an item that cost $1.00 a century ago costs $18.00 today.
However, there are times when commodity prices shoot through the roof. And when that happens, currency value (the purchasing power) takes a dive. Your bank savings and fixed assets lose their value while the cost of essential items becomes unattainable. It’s worse if you rely on a single income stream and are the sole provider of your household.
That underscores the significance of understanding how to save money during inflation. Putting the right interventions in place may not reverse the effects of inflation. But it can lessen the impact of these austere times.
What Causes Inflation?
Inflation can be slow and gradual. It can also be sudden and unprecedented. No matter how it manifests itself, the underlying triggers are more or less similar.
An increase in jobs and higher wages are the biggest causes of inflation. The two factors typically result from a surge in production volume.
For instance, a farmer who initially produced 5 metric tons of soybeans may be fortunate to land new markets due to a demand for these legumes. The rising soybean demand will trigger a corresponding need for higher production volume.
To produce more soy, the farmer would hire additional laborers or increase the salaries of their existing employees as an incentive to work harder. This ultimately translates to a rise in consumer spending. And when too much money is chasing too few goods, firms will correspond by increasing the prices of their commodities.
Strategies for Saving Money During Inflation
1. Prioritize Saving
Inflation is typically marked by more spending than saving. Therefore, it may prove a bit challenging to prioritize saving during these austere times. But that’s precisely why experts encourage planning to determine the fraction of your paycheck you can comfortably save.
Prioritizing savings during inflation can help you to live within your means. Remember to put the defined amount in a savings account to limit your access. A high-yield savings account, in particular, is the best place to save money and earn interest during inflation.
There are several factors to consider when determining the correct fraction of your paycheck to commit to a savings account. These include your net income, savings goals, lifestyle, and household size.
If you’re in doubt, you might implement the generally-accepted 50/30/20 budgeting rule. In this rule, 50% of your net income goes to needs, 30% to wants, and 20% to savings.
You might also invest in budgeting applications to help you save time. Some of these apps are also excellent at tracking your expenditure.
2. Track Your Spending
After defining the percentage of your paycheck to commit to your savings account, your spending habits are the next area to focus on. Note that when inflation comes calling, every single dollar matters.
Tracking your spending can help you uncover and seal potential financial leaks before things get out of hand. For instance, you might realize your credit is charged for an outdoor subscription box when your next vacation is months away.
The most effective way to track your spending is by reviewing your bank and credit card statements over the last few months. You’ll likely uncover wasteful expenses you can cut back on or cancel altogether.
Next, check your day-to-day spending on items like groceries.
The following questions might help you to uncover loopholes in your spending;
- Are you paying for streaming services that you don’t use?
- Are you paying for a gym membership you haven’t used in months?
- Do you eat out more than you cook at home?
- How much of your cooked meals end up in the trash?
- Are you subscribed to a delivery service that you presently don’t need?
- Are you incurring unnecessary credit card interest?
- Have you purchased unnecessary insurance coverage?
- Do you have a penchant for buying expensive clothing and gifts?
3. Save Money on Transportation
Gasoline and petrol are among the top commodities usually worst hit by inflation. So, this is an area you want to save on.
There are multiple ways how to prepare for inflation through saving on transportation. It mainly depends on whether you own a car or not.
The first intervention is for car owners to reduce their driving as much as possible. You don’t need to pay more for gas when you can commute to work using public means. Much less when you can walk or cycle to the office.
Besides, you could consider carpooling or ride-sharing to work. And if the nature of your job allows it, ask your employer if you can work from home.
Another method is to run errands in batches. Prepare a comprehensive groceries list and buy them once instead of making multiple drives to the convenience store.
4. Cut Back On Energy Bills
Energy is another area that usually bears the brunt of inflation. The good news is that there are several measures you can put in place to reduce your monthly energy bills.
For instance, invest in a thermostat.
A high-quality thermostat will automatically detect temperature changes and switch on/off your heating appliances. These devices provide a hands-off approach to space heating while reducing unnecessary energy wastage.
Since high energy bills also come from water, you want to ensure your plumbing systems are in peak condition during inflation. Hire a local plumber to inspect your home’s piping system for leaks and damages.
Below are other ways to cut back on energy bills;
- Insulate your water tanks
- Spend less time in the shower
- Turn off the electricity by first light
- Switch over to energy-efficient LED light bulbs
- Unplug electronics when not in use
- Only run the dishwasher when it’s full
- Use warm (instead of hot) water for laundry
- Wrap foods in the refrigerator to reduce moisture loss
5. Ask For a Pay Rise
Full disclosure – inflation is probably the least time your employer thinks of a pay rise. That’s because, with the general increase in commodity prices, the company is feeling the pinch too.
However, there’s no better time to ask for a salary increment than during inflation. Considering the prevailing economic situation, any reasonable employer would be more inclined to grant your request.
One of the most important tips when asking for a pay rise is approaching your boss at their best times. Study their disposition to determine if they’ll be able to give you an audience.
It’s also essential to list your accomplishments in the company when asking for a salary increment. Most importantly, hype what’s in it for your boss, not just you.
6. Diversify Your Income Stream
You’ve probably read numerous articles emphasizing the need for establishing more income streams.
Indeed, it’s difficult to find any billionaire who earned their wealth pursuing a single income stream.
Besides being one of the most practical wealth creation tips, income diversification is also among the top ways on how to combat inflation.
Your passive income streams can go a long way in supplementing your daily job. Side hustle earnings will be especially useful when you cannot secure a pay rise.
The idea is to start early. Don’t wait until inflation comes calling to set up a passive income venture. That’s because your finances are already strained by the time the effects of inflation start to bite.
7. Manage Your Debts
It’s almost impossible to live a debt-free life. However, it’s possible to manage your debts effectively, which makes it one of the most reliable solutions to inflation.
Note that you’re likely to plunge into more debt during inflation. Therefore, the secret is to pay off your debts before your budget becomes too constrained.
And the good news is that you can explore numerous debt management strategies to settle your outstanding loans.
One such technique is the snowball method, whereby you pay off small debts first. There’s also the avalanche method, whereby you settle high-interest debts first.
Besides, you could consider debt consolidation. This is a method whereby you take one loan and utilize the borrowed funds to pay off smaller debts.
Final Word
Inflation can greatly blow your finances if you do not put the necessary safeguards in place to alleviate its effects.
Fortunately, you can make the above-listed adjustments to your financial plan to mitigate the impact of inflation on your household.
