How to prepare for and deal with inflation

If you’re worried you might not be able to afford another rent increase or that you won’t be able to save money with higher rent, you’re not alone; many people are concerned for their finances, especially in the face of inflation.

What is inflation?

Simply put, inflation is a decrease of consumer purchasing power, indicated by a rise in prices. Today, we see inflation in many forms across industries. Housing prices and monthly rent amounts tend to be positively correlated. When the cost to purchase a home goes up, some people who were in the market to buy can no longer afford to purchase and decide to rent their housing instead. This increased demand for rental housing pushes prices up as fewer vacancies exist. This gives sellers and landlords more control over their pricing.

Another popular inflation trend is called “shrinkflation,” where products such as breakfast cereal and toilet paper are sold in lower quantities or volume for the same price.

How does inflation impact personal finances?

Inflation, in any of its forms, drastically impacts your budget. Because housing costs are one of the biggest monthly expenses in the average budget, the affects of inflation in this category can be particularly difficult to deal with. Even if you're comfortably managing your costs right now, these price increases will affect your household budget over time. You may even find yourself compromising on the things you want in order to afford those needs. Often times, your savings habits are one of the first areas to be sacrifice, which has the potential to delay your ability to reach your future financial goals.

Start a special savings account

One of the best ways to guard your finances against inflation is by opening specific savings accounts dedicated to financial goals, budget items, and "known unknowns" like major car repairs, appliance replacements, etc.

There are many benefits to having a savings account. For instance, separating the money you plan to save from the money you plan to spend is a great way to start organizing your finances. No matter where you're at on your savings journey, this first step can help you begin to visualize your spending. 

If you don't know where to start with your savings, try building an emergency fund. This strategy has you create a savings account specifically for emergencies that have the potential to derail your finances - like a car accident or an unexpected hospital stay. Even if the emergency comes in the form of an unanticipated rent increase, and emergency fund gives you options for weathering a rainy day.

Track your finances

Another great thing to do is begin tracking your daily, weekly, and monthly expenses. When you improve your personal bookkeeping, you can begin to recognize patterns in your own spending. Where are you overspending? Understanding your own habits will be the first step towards hitting your savings goals.

Look for ways to save

You might also be surprised how you can save money in your current financial commitments. With due diligence, you may discover new pathways for saving that you weren’t aware of previously.

Commit to a longer term rental - If you’re able to stay in your current living situation for a longer contracted period, you may be able to pay a lower monthly rate.

Negotiate with your landlord - Ask your landlord about your options. You may be able to negotiate a lower monthly payment if you can agree to a longer lease. Sometimes, you'll be able to pay earlier in the month in exchange for a price break.

Buy generics at the store - Brand names are fine, but generic store items provide just about the same exact value for a lower price. Keep a look out for these next time you’re at the store.

Contact your credit card company – Try to pay all your monthly payments on-time, even if it means paying the minimum amount due. If you can’t make that minimum payment be sure to call the credit card company to give them a heads up. You may be able to avoid a late fee. It doesn’t hurt to call and see if they’ll lower your interest rate but do this before going late on any payments.

Shop for insurance - You can always shop your insurance policies to find a better monthly payment. If your credit score has improved and your driving record has remained clean, you may be able to lower your premiums. Some insurance agencies, like the one at First Tech, can do the shopping for you.

Consolidate debt - You may be able to qualify for a personal loan to pay off your more expensive credit card debt, which will in turn save you money. Personal loans or home equity loans (if you own a home) may offer lower Annual Percentage Rates (APR) than credit cards.

Increase your earning potential

You should also never rule out the possibility of making money outside of your normal routine! In looking for other work opportunities, you may be able to increase your earnings while also diversifying the type of work that you do.

Part time jobs - Businesses everywhere, especially today, are looking for individuals to take shifts in a variety of industries. There are a plethora of positions available, and many that could fit well into your schedule.

Side hustles - Tutors, photographers, freelance coffee distributors, and writers all have one thing in common: leveraging their auxiliary skills for supplementary income. If you have a special interest, hobby, or ability, consider starting an account on Fiverr or Upwork to bring in some extra cash.

We can help

Fortunately, First Tech also provides pathways for understanding how inflation will affect your personal finances and what strategies you can implement to be fully prepared for larger expenses while considering current inflation. We have financial professionals to help members in all stages of life. Members can meet with our professionals in a branch or by phone to discuss their personal finances and goals to receive guidance that will give them a clear sense of direction.