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Inflation and the Road Ahead

Posted by Advocate Debt Relief Team

4 months ago / May 20, 2022

Currently, inflation is at a whopping 8.3%, which is 1.3% higher than last year. Costs are going up everywhere, and people are feeling the squeeze. Financially the economy has fallen into uncertain times, and many of us don’t know what to do. Those of us in debt are shaking in our boots. To combat the skyrocketing inflation rate, the Federal Reserve recently raised interest rates. Many of us wonder, “What does all the uncertainty mean?”

The Fed and Interest Rates

The primary focus of the Federal Reserve is to control the supply of money in the country’s economy. Their ability to influence interest rates is the biggest tool in their arsenal. Ultimately, raising rates aims to increase the cost of using credit throughout the economy. The recent 0.5% hike creates a ripple effect with pluses and minuses. The immediate impact is higher interest rates on loans, while banks react by increasing the amount you earn on money in savings accounts.

Spending behaviors are the most significant effect of the Fed’s increase. People who refuse to pay higher interest rates on new loans, or can’t afford them, will likely cancel projects that include financing. Conversely, people are encouraged to save more money. The thought process is that this reduces the amount of money in circulation to lower inflation.

How to Navigate Forward

We can take action rather than hold our breath and wait for inflation to end, which isn’t likely anytime soon. There are many ways to approach this issue, and it’s essential to create a plan that is best for your financial, physical, and mental health. Above all, make a plan you will realistically stick with to achieve the best results.

Intentional Savings

Saving is always a good idea, but intentional saving will stretch the dollar farther in tough times. An emergency fund for those unexpected circumstances that drain the bank account is a great start. A significant home, car, or appliance repair (or replacement) is enough to set anyone back considerably. The higher interest rates on new loans should incentivize you to put away a little extra cash in case of a crash.

Another practical way to save is to get a handle on your current spending. Budgeting is a must to get the most out of your dollar. Without sound analysis, you can bring in all the money you want, but a hole in the bottom of the bucket will keep your savings account light.

Set aside time to look for deals on things you need. Sundays and Wednesdays are traditionally great times to look through department and grocery store savings ads. Eating out less and preparing your food at home is an easy way to shave a few bucks off the bottom line. Don’t forget how expensive daily coffee can be. A low-cost coffee maker and tumbler will save hundreds a month.

Gas Efficiency

The gasoline index raised just over 18% in March, and clearly, there are no signs of increases slowing down. Before going on an extended summer trip, make sure you’re doing everything possible to get more miles out of the gallon. Perhaps the easiest step is to be deliberate about car trips. Something as simple as doing errands on lighter traffic days and grouping them in the same areas can help a lot.

Another way to save on gas is to look harder at where and how you buy. A handful of gas apps are beneficial in finding the cheapest gas prices in town, like GasBuddy, AAA, and Gas Guru. Also, consider how you’re going to pay because some gas stations give discounts for cash over credit cards.

Finally, your driving habits could be driving up gas costs. Your gas tank is draining much faster if you have a lead foot. Slowing down an extra 5 – 10 miles per hour will conserve fuel. Don’t forget to check your tire pressure. Proper tire inflation creates less drag and burns less petroleum.

Build Your Inflation Hedge

On top of rising inflation, supply chain issues are being felt everywhere. The grocery shelves are a little less stocked, and backorders are commonplace. Given that you can find space, starting to stock up on non-perishables in bulk when they’re on sale is a good idea.

An older concept is to plant what was referred to as a “victory garden” in both World Wars. During World War I, farms were devastated because the agricultural labor force supported the war effort. Over five million gardens were planted in yards and public lands that generated over a billion dollars by the end of the war. A victory garden could save you money if you have access to dirt, water, and sun.

Inflation can seem scary, especially if crushing debts have a chokehold on your finances. Do your best to implement practical changes to your lifestyle, but don’t hesitate to get a professional involved if you can’t make a plan that sticks. Advocate Debt Relief can help you map out your road to success.

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Filed Under: Budgeting