Inflation and Your Personal Finances

Inflation and Your Personal Finances
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We’ve entered an inflationary period that seems to be easing a bit but not enough for most households to notice, particularly when it comes to everyday necessities like groceries. When it comes to your budget, inflation is a real killer. But take heart, because when it comes to inflation and your personal finances, there are moves you can make to offset the high prices. 

What is Inflation?

Basically, inflation is an overall hike in the costs of goods and services and correlates with a drop in money’s purchasing power. For the 12 months ending in July, the nation’s annual inflation rate was 8.5% — down a bit from 9.1%, which was the worst in four decades.

The rate is frequently measured by differentiations in the Consumer Price Index (CPI), which averages the price of goods and services from areas nationally. Results are reported as a percentage increase or drop in the CPI.

The Effects of Inflation

Inflation has a wide-ranging impact on consumers like you, in addition to investors and the economy. To wit, inflation affects:

  • Buying power. An overall hike in prices over time lowers the purchasing might of consumers since a fixed amount of cash will afford increasingly less consumption.
  • The impoverished disproportionately. People with lower incomes tend to fork over a bigger chunk of their overall earnings on everyday items than those who earn more, and so are less protected against purchasing power loss. 
  • Wage demands. When inflation continues to linger, employees begin demanding larger wage hikes. Organizations then raise prices on production, sparking a wage-price spiral. In the meantime, if you need help resolving debt, we recommend
  • Interest rates. When inflation threatens to surpass a central bank’s target, the government can raise the minimum interest rate, rendering borrowing more expensive.
  • Debt service costs. People with fixed-rate mortgages and other loans can repay with inflated money, reducing their debt service costs once adjusted for inflation.
  • Economic growth. In the short term, inflation can result in quicker economic growth. Ultimately, though, persistent inflation causes a damaging downturn.
  • Rising inflation expectations. Continued acceptance of inflation to protect employment might ultimately spark an inflationary spiral of price and pay increases.

What You Can Do

There are some acts you can take to help ease the pain of this protracted inflationary period, and to set yourself up for a better financial future.

  • Keep investing. Although your instincts may tell you to hoard your money right now, a solid, diverse investment strategy can help you deal with economic volatility. That’s why it’s key to invest for the long term and to establish such plans before these periods hit.
  • Lower your expenses. Look closely at your outlays and cut out what you don’t need. Then, try to reduce the rest. Look at whether you can lower how much you spend on home and car insurance, Wi-fi, your phone, and recurring subscriptions, for example
  • Become more efficient with groceries. We toss so much food we buy. Instead, freeze more fruits and veggies before they go bad – you can use the former for smoothies — and get better at meal planning. You should also take advantage of cashback credit cards and coupons.
  • Think about Series I savings bonds. If you don’t need your money right away, you may want to consider taking extra money out of your low-interest savings account and going with Series I savings bonds that you earn you a better return.
  • Raise your income. Your employer may be hoping you don’t, but you probably should ask for a raise or promotion. You can also get an outside gig or peddle things you aren’t using on Facebook Marketplace, Craigslist, or eBay. Further, you can try to figure out a way to monetize your hobby or something you enjoy doing. 

When it comes to inflation and your personal finances, the effects of the higher prices for goods and services that we’ve been facing for months are far reaching. But you don’t just have to sit there and take it. Employ some of the suggestions above to help you get through this period. And remember, if your debt situation is acute, contact Achieve for resolution.

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