Did your last trip to the grocery store or gas station cost more than usual? If so, you’re not alone. The prices of consumer goods—the items you buy every day, such as clothing, food and entertainment—are rising faster than they have in 30 years.
Prices of a broad set of items, including food and energy, were 4.4% higher in September 2021 than they were in September 2020. Typically, prices rise about 2% a year, according to the U.S. Bureau of Labor Statistics. The last time prices rose so quickly, it was 1991.
In short, we’re in a period of inflation.
What Is Inflation and How Is It Measured?
Inflation measures how quickly prices are rising. There are multiple ways to measure inflation, but the one you’ll hear about most often is the Consumer Price Index, or CPI, which looks at a variety of goods people in urban areas regularly buy and how the prices for those items are changing over time. Several economic trends are driving today’s high inflation, including the pandemic, labor shortages and even climate change.
Although you can’t completely escape the effects of inflation, you can reduce its impacts with some simple strategies.
Search for Sales
When prices are rising, taking extra time to find sales can pay off. Coupons and buying in bulk will help you cut expenses, as will switching to store brands or lower-cost stores. If you can put off a purchase until it goes on sale, do it. Yearly sales, such as Black Friday, Cyber Monday and after-Christmas deals, could save you some cash. You can also check out deal-finder sites.
Don’t forget to look for discounts on purchases you only make once a year. Renewing your homeowners, renters or car insurance? Take the time to shop around, and ask your agent if you can get a better price for the same coverage from another insurance company.
Wait to Make Big Purchases
Buying necessities in bulk makes sense during inflationary times because tomorrow’s prices will likely be higher than today’s. But making big purchases—such as a car, computer or bike—generally doesn’t make sense. That’s especially true now because pandemic-related supply shortages are partly responsible for the current inflation rate. As these shortages ease, prices will likely fall. If you buy now, you may end up overpaying.
Thinking about making a big purchase with your credit card? Before you swipe, consider how inflation may affect your payments over time. For example, variable interest rates tend to increase during inflationary periods, which means that you may end up paying more in finance charges and interest payments than you would during a period of deflation. The big purchase may be necessary and a credit card can be helpful in covering the cost, but it’s still important to take any additional charges and fees into account for your budget—the small details add up.
Stick to Your Budget
In inflationary periods, sticking to your budget is especially important but can feel extremely difficult. After all, you can’t control the fact that necessities are getting more expensive. Finding sales and carefully considering large purchases will help you stay on track. And, if you don’t have a budget, you can use rising prices as a motivator to build one.
If you struggle to stick to a specific budget, consider other ways to save. Pick a spending category or two that’s not necessary and drastically cut your costs there. Forgo the new clothes, and you may find getting ready in the morning is faster and easier. Skip restaurants, and you could do your health a favor. Or you can find free alternatives. Many libraries offer access to streaming services, meaning you can stay entertained without spending a penny.
Also, avoid dipping into your emergency fund to cover generally higher costs. You’ve worked hard for that money. Now is the time to protect your past effort and your future self who could face a true emergency, such as an unexpected car repair or a big veterinarian bill. You can maximize the value of your emergency savings by ensuring your money is in an account that pays interest.
Think in Long-Term Averages
Rising prices are a good motivator to cut your spending, but don’t let the increasing costs of everyday items worry you too much. Over the course of your life, you’ll buy necessities when prices are rising and when they’re falling. Sometimes, you’ll benefit from the lower prices, and sometimes you’ll have to pay more. Focus on big wins, like paying off debt and cutting truly unnecessary expenses so inflation doesn’t increase your stress levels.
Ask for a Raise
Inflation reduces your spending power, so making more can counteract inflation’s impact. Some employers automatically account for inflation when determining annual salary increases, but not all do. If yours doesn’t, consider asking for a raise.
Beforehand, prepare a list of your accomplishments over the last year, and do some research on typical pay ranges for your position. In your conversation with your manager, focus on the value your accomplishments have brought to your employer. This way, you’re not focusing purely on the problem of rising prices but also on all the ways you’ve helped make your company more successful.
Stay Smart
Inflation like we’re seeing today may not be fun from a financial standpoint, but it’s a good reminder of the value of being smart about your money. And the next time prices rise this rapidly, whether it’s three months or 30 years from now, you can use these tips again to weather the storm.
Elizabeth Whalen is a freelance writer based in Seattle. She loves writing about business, financial services and sustainability.
Illustration by Doug Chayka.
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