Inflation Impacts and Financial Clawback Strategies

Unless you’ve been living under a rock during the past three years, you know that inflation- i.e., an increase in the cost of goods and services- has been a major concern of U.S. households as their dollars purchase less than they did prior to the pandemic. While virtually no household purchase has been exempt, areas of highest recent concern are food, vehicles, insurance, and housing.

As a result of inflation, Americans have faced a number of challenges including the following:

 

¨   Eroded Savings- Cash accounts lose value if interest earned is less than the inflation rate

¨   Increased Cost of Living- Essential expenses are more expensive, straining household budgets

¨   Retirement Challenges- People with fixed incomes find it especially hard to cover expenses

¨   Debt Burden- Mortgage and credit card interest rates have risen in an effort to fight inflation

¨   Wage-Price Spiral- Workers get higher wages, increasing prices and perpetuating inflation

 

What to do? Try to claw back the extra money that inflation is costing you so you don’t feel like you are falling behind. Below are ten specific strategies:

 

No Nonsense Budgeting- Create and stick to a detailed spending plan that includes realistic numbers for income and expenses and puts a priority on essential needs.

 

Reduce Discretionary Spending- Cut back on non-essential expenses such as dining out, beverages (except water) for restaurant meals, paid entertainment, and luxury items.

 

Cut Utility Use- Enact energy-saving actions to reduce electric, gas, and water bills. Example:  turn the thermostat up 1-2 more degrees (summer) and down 1-2 more degrees (winter).

 

Shop Secondhand- Visit thrift and consignment shops, flea markets, and/or online sales websites (e.g., Facebook Marketplace, Craigslist, eBay) to save money versus new purchases.

 

Food Shop Carefully- Take advantage of sales, coupons, and reward/discount programs to lower food costs and consider bulk buying at warehouse stores if the math works to save money.

 

Increase Savings Rate- Save a higher percentage of income, by freeing up cash through reduced spending, to build a financial buffer against rising expenses.

 

Diversify Investments- Purchase investments in different asset classes (e.g., stocks, bonds, cash equivalents, real estate) to hedge against both inflation and investment risk.

 

Raise Your Income- Request a meeting with your boss to discuss a salary increase based on your productivity and value to the company. Another option: a “side hustle” income source.

 

Shop Secondhand- Visit thrift and consignment shops, flea markets, and/or online sales websites (e.g., Facebook Marketplace, Craigslist, eBay) to save money vs. new purchases.

 

Negotiate Bills- Contact service providers to negotiate lower costs on utilities, a cell phone plan, insurance premiums, credit card interest rates, and more.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.