1981 was the last time our nation witnessed consumer prices at today’s elevated levels. Not a single commodity has been immune, and our bank account reminds us daily. Questions about the government’s response to the situation are being raised with few answers. Will the Federal Reserve’s interest rate hikes tame inflation? Or will the raises weaken the job market and paycheck growth?
The primary problem that triggered the current inflationary environment is that too much money is in circulation with insufficient goods. The pandemic caused the government to use a stimulus that injected money into the economy for people whose jobs were jeopardized due to shutdowns. Fewer people worked, money remained in circulation, and goods were not produced. The supply still has not caught up to demand while people continue to have buying power. This sequence of events caused the current inflation we’re seeing today.
The Federal Reserve, otherwise known as the Fed, is fighting to get inflation under control. The primary weapon they possess is controlling federal interest rates. The idea is to create a ripple effect of cooling the economy.
When interest rates are higher, the cost of mortgages and company loans rises. The effect results in slow business growth, less hiring, and lower wage increases. The hope is that people shop less, make fewer large ticket purchases, and give supply a chance to catch up. This approach is not unique to the U.S. About four dozen countries have raised their interest rates over the last six months because of inflation.
Unemployment is predicted to be on the rise by the end of the year. Inflation is expected to be lower; however, still at a high point relative to pre-pandemic inflation. The financial uncertainty has created an unstable market, and many are scrambling for solutions.
Stock prices are plummeting, and many have dipped into savings to meet the demand of high costs. Wage growth has been slow, and the road ahead doesn’t look promising. A cursory look at the ‘80s paints a more accurate picture.
In the 1980s, federal interest rates peaked at 14.6 percent. The inflationary environment triggered back-to-back recessions, making it challenging for working families. Unemployment at the time reached nearly 11 percent. Although current unemployment is around 3.6 percent, this could change because of our uncertain financial environment.
Combat Inflation at Home
Aside from holding onto your current job or finding a better one before hiring slows down, there are practical approaches to combating inflation from the home front. It’s important to incorporate changes you can sustain without going off track. Otherwise, you’ll overcompensate at some point and regress in your spending habits.
Pick and choose your financial battles and remember that every dollar saved helps. Here are some simple ways to save a buck:
A great way to pocket your money is to set up an automatic transfer from your checking to your savings account. The trick is to set aside an amount you can separate without dipping back into it. This cash is perfect for an emergency fund to address those unexpected life events, like a car breakdown or home AC problems, that tend to take us further into debt.
Marketers are more crafty than ever and often subliminal in their messaging. We’ve all been vulnerable to great marketing, especially for a product we already have at least a mild interest in purchasing. Don’t become a victim of an unnecessary impulse buy.
If your email inbox is flooded with marketing emails, take the time to unsubscribe to all of them. It’s a time-consuming task but well worth the effort. In the same spirit of the auto-save, when great marketing for trivial items is out of sight, it will be out of mind.
Pocket Unexpected Income
An inheritance, work bonus, or items sold from a collection hobby (like a coin collection or collectible cards), are considered unexpected income. When you’ve been scrimping and saving for a while, it can be wildly tempting to blow that money on unnecessary items. Resist the urge!
Times are not financially stable, and things won’t get any better shortly. Use this opportunity to pay down your biggest adversary — high-interest debt. Use it to pay down the balance if you have high-interest debt, like credit cards or variable interest loans. Few things are worse than making higher minimum monthly payments when you’re already struggling to meet ends.
Get Debt Under Control
Before inflation possibly worsens or wage growth stops, attack your high-interest debt. The snowball effect is one of the most effective ways to impact this debt. You pay off your lowest debt and work toward your highest debt balance. It allows you to gain momentum while eliminating crippling debt.
Perhaps you’ve tried to get your arms around high-interest debt but continue to find yourself at square one. Don’t be discouraged; many people experience this problem. If you’ve never consulted a professional, now is the time. Advocate Debt Relief can assess and solve problems with you to set your financial future for success.