Dealing With Inflation!

How do we deal with inflation? The cost of goods has increased around 8% over the past year. The income for most has remained constant or only slightly higher during that time. If you are not careful, you will find yourself spending more than your income. Unfortunately, many people don’t notice as they use their credit card to make up the difference or don’t notice until they receive their credit card statement. I want to share a few simple strategies to offset some of the increase.

The price of gas is one of those areas with the largest increase and therefore the first tip is to drive less. This is accomplished by planning your trips. We like the convenience of getting items when we want them. Consolidating trips can reduce the amount of gas used as well as the wear and tear on your car.

Have you ever used coupons? Maybe now is the time to start. Using coupons can reduce cost and in some cases provide you with free items. Look around coupons are out there. A simple search on the internet can provide you with a list of sources. You also get them in the mail or newspaper.

Use your merchandise cards. The gas station I use has a merchandise card. I scan the card and instantly get 3 cents off my gasoline. It also provides me with a free doughnut and coffee on occasion. Many grocery stores offer them as well.

If you are purchasing large items like a refrigerator or even a car, think about delaying those items for a few months. When it is time to purchase, compare prices. The recommendation is to compare prices at three different locations. You would be surprised how stores mark up prices on certain items to reduce prices on others. Their goal is to get you in the store. Your goal is to save money!

Think about a household audit. You don’t realize how many items you have drawing power that you are not using. Unplug it! What about those lights? Turn them off when you leave the room. Now your thermostat, adjust it a little higher in the summer and a little lower in the winter. Remember, little things add up.

I also need to emphasize the importance of a spending plan. You need to know where your money is going. Analyzing your spending plan will inform you of the habits you developed like buying coffee every morning. It may not seem like much, but every trip costs you $2-$10. 

These strategies may seem simple, but little things add up. Be savvy and save!

Inflation – What is it?

One thing that we all know for sure is that the price of goods is going up. A gallon of milk in 2020 cost $3.32. Over the past year it increased by 6.9% to $3.55 per gallon. The increase in the cost is referred to as inflation. The Bureau of Labor Statistics (BLS) defines inflation as the overall upward price movement of goods and services in an economy. 

Often referred to when we discuss inflation is the Consumer Price Index (CPI). This is the change overtime in the prices paid for a basket of consumer goods and services. Those items fall into eight major groups; food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services.

There are a lot of factors that impact the costs of goods. Simple things like the increase in cost of labor and materials make the price go up. If the workers are paid more than the price will increase to offset the increased expense or the price of gas to transport, will increase price. Then there are more complicated issues like interest rates, government policy, and supply vs. demand. In general, an inflation rate of 2% would be considered average. Right now, the inflation rate in the United States is around 7% to 8%. For most of us, our salaries have not increased at the same rate, meaning we have less money. This is why it is important to start tracking your money.

Now I could go down the road that you need to create a budget, but I am not going to do that. Instead, I will respond with a question. When the cost of goods you typically buy (like gas and groceries) go up, where will you get the money to pay for those goods? 

The answer is you will need to increase income (money you make) or decrease expenses (buy less). Unfortunately, you’re not likely to get a raise at work that will cover the increased costs. Your other income options include getting a new job that pays more, getting a side job, or selling goods you no longer need or use. Options to decrease expenses often involve a change in habits. Some good habits include being a frugal shopper by looking for deals, eating out less, consolidating trips, and evaluating your wants vs. needs. Some not-so-good habits include not tracking your expenses, using credit cards, paying your bills from your savings, and reducing your savings. 

At this point, you may consider making some changes to your personal finances. There are lots of good materials out there. One source that I like to share is the Your Money Your Goals toolkit, by the CFPB. The toolkit includes tools and handouts to set goals, track income, pay expenses, and plan your spending.

When Your Income Is Not Enough: Learn to track and prioritize

Unfortunately, many of us have been in a position of not having enough money to pay all of our bills in full and on time each month. Even if we have planned carefully, there may be situations where there is not enough money to pay bills. When your income is less than usual or you have had an unexpected expense, your regular bills and living expenses do not stop.

When you can see that you are coming up short to pay your bills and living expenses, there are a few things you can do. For some, balancing personal priorities and family expectations can sometimes be a challenge. If your work is seasonal or irregular, you may be able to cover everything when you are working, but struggle to cover expenses in the months or weeks when you are not working. 

The more you can prepare for your bills you know are coming, the better you can save for them. Having a plan in place for paying bills can make them easier to pay and help reduce stress. To help you gain a better understanding use the spending tracker, bill calendar, cutting expenses, and prioritizing bills strategies. 

Spending Tracker

  • Get a small container or envelope.  Every time you spend money, get a receipt and put it into the case or envelope.  If the receipt does not list what you purchased, take a second to write it on the receipt.  If you do not get a receipt, write down the amount of the purchase, what you purchased on a piece of paper, and add it to the stack. 
  • Analyze your spending. Go through your receipts and enter the total you spent in each category for each week. Add the weekly amounts per category. Once you get have totals, add them together to get your total spending for the month. 
  • Notice trends.  Circle items that are the same every month (rent, car, or cell phone payments). This will help you create your budget easier. Identify any areas you can eliminate or cut back on.

Bill Calendar

  • Gather all the bills you pay in one month or use the information from your spending tracker. 
  • Write down the date when you must send the payment or when the money must be taken out of your account, in advance of the due date. 
  • Write down the name of the company or person you owe the money to and the amount that’s due on the date the bill must be sent to arrive on time.

Cutting Expenses

These are a few suggestions to decrease spending. You can use coupons, switch to lower-fee or no-fee accounts at financial institutions, and bring lunch to work instead of buying it.

Prioritizing Bills

Identify what you need to pay to protect your housing and income, keep your insurance, and meet any court-ordered obligations.

For more about personal finance programs at UME, go to https://extension.umd.edu/programs/family-consumer-sciences/financial-wellness/personal-finance.