Despite the message from the Federal Reserve, that inflation is transitory, consumers are finding the hard way that rising prices are stickier than thought.
The price of everything from — groceries and heating your home —to buying a new house or car has hit the roof. According to data released by the U.S. Bureau of Labor Statistics, the Consumer Price Index (the inflation gauge used by economists), reached a 30-year high when it reached 6.2% in October.
With the price of necessities and utilities going up, this is the time to apply more scrutiny to the way we spend money. Adopting creative ways of saving money can go a long way in reducing the effects of inflation on your wallet.
8 Ways You Can Spend Wisely & Manage Your Expenses During Inflation
1. Pay bills annually
You can get a discount on your bills if you make yearly payments instead of paying monthly.
For example, insurance companies give discounts to clients if they pay a premium on an annual basis. Though the amount saved may seem meager, remember every dollar saved during inflation would help in the long term.
2. Reassess your budget
Inflation takes a deeper bite on your pocket.
With little cash to spare, this would be the time to reassess your budget and tighten the screws on your finances. Look out for areas where you can make adjustments to your spending.
Cut out expenses you don’t need, and look for cheaper alternatives for those you need. You could start home cooking instead of eating out or reduce the number of streaming platforms you are subscribed to. There is always a loophole in your spending that can be plugged.
3. Time your purchases with clearance sales
There is no better time to buy consumer goods than when there are discounts and sale offers.
Many big retailers offer clearance sales when the price of items is sold at a discount. You could plan your shopping around such a period to reduce your shopping expenses.
Clearance sales do not mean inferior quality. Sometimes these goods have to be sold off to make way for newer ones as retailers need to stock up. Other times, the items may be ‘off-season”. However, you can get very good value for your money when retailers offer clearance sales and discounts.
4. Reduce food wastage
With the price of consumables on the increase, you would have to minimize your food waste.
This does not imply starving yourself, but rather paying close attention to your eating portions and preparing only the quantity you are sure you can finish. If there are leftovers, rather than trashing them, you can store them in the freezer and use them for some other time.
You can buy perishables like vegetables and tomatoes in little quantities, preventing food waste.
5. Buy in bulk
One way to stay ahead of the inflation curve is by buying things in bulk.
Inflation heralds an increase in prices. This implies that you may be spending more monthly to stock up on the same quantity of food. Rather than, for example, shopping monthly, you can buy three months in advance.
That way when prices rise, you are still spending less on average for your food items. However, be warned that not all items are good for long storage.
While food such as potatoes and onions can be stored for a long time, others such as vegetables, carrots, and cucumbers cannot be stored for a long time. As such you would have to use your initiative to buy things in bulk.
6. Home cooking
As prices of goods rise, businesses would pass on the costs to consumers.
As such, the meal at your favorite restaurant would cost much more. Don’t forget that these are businesses that also have to pay their staff and other expenses to keep afloat. So the bite on inflation may be harder on you.
Rather than eating out, you can prepare your meals at home. This is not only cheaper but also healthier as you can get fresh items from your local market.
If you are not a big fan of cooking, you can choose a day and cook your food in bulk, then store them, that way you can warm your meal anytime you want to.
7. Invest instead of saving
The last thing you should think about doing during inflation is saving money.
This is because the rising prices erode the value of money. On the contrary, this is the time to stay invested. Financial instruments such as bonds, TIPS, and even equities provide a good hedge against inflation. This allows you to preserve the value of your money.
8. Buy rather than rent
During an inflationary environment, the decision to rent vs. buy tends to favor buying over renting.
While your lease comes due each year, your landlord will most likely raise your rent at the rate of inflation, which is OK when inflation is low, but far less ideal when inflation is high. Your home expenditures as a tenant are not shielded from inflation.
On the other hand, there are two compelling reasons to purchase your property. For starters, as a homeowner, your mortgage payments are usually set in stone. Secondly, because the cost of land, materials, and labor are all rising with inflation, the replacement value of your home is likely to rise as well.
Being a homeowner can help you avoid the effects of inflation.
Key takeaway
While we may dread inflation as consumers, it is a time we can get creative with our spending.
If done properly, it could also be a period when we practice good money management skills that would help us in our journey to achieving financial independence.
Inflation does not just happen out of a vacuum, as the signs would be rearing their heads in economic reports such as the CPI and PPI. Rather than being reactive like everyone else, you can make plans and adjust your budget accordingly.
Control your spending and if possible, target shopping when discounts are available. Try to pay some of your bills upfront annually to qualify for discounts. Also, never leave your money idle in the bank, but put it to work by investing it.
Applying these strategies would give your finances a reprieve from the effects of inflation.
Photo by Vitaly Taranov on Unsplash