How inflation impacts every aspect of our financial journey
Inflation (/inˈflāSH(ə)n/) | noun | A general increase in prices and fall in the purchasing value of money.
Everyone keeps talking about inflation. But what does it really mean to us? And is there anything we can do about it? Let’s face it: inflation is complicated. It can impact everything from national economic policy to your individual spending plan. While we can’t help much with the economic policy aspect of it, we can help with how it affects your situation.
What increases inflation?The primary cause for inflation is when prices for goods and services go up. Right now, the pandemic and supply chain issues have caused prices to increase for everything from gasoline to rent. Economic policy also plays a role, which is why the Federal Reserve is now in the process of raising interest rates in an attempt to rein in inflation without damaging economic growth. It’s a tricky balancing act. As of Spring 2022, inflation is at 7.9% which is the highest rate since 1982. The typical inflation rate is closer to 2%, which is the Fed’s target rate. If you’re wondering why you’ve been hearing so much about it in the news, that’s why.
What does this mean for us?Inflation impacts many aspects of our financial journey – as consumers, savers, borrowers and investors. Here’s a look at each:
- Consumers. We’re going to pay more for almost everything. Have you noticed your grocery bill is higher than what you’re used to even though you pretty much buy the same things? Food is more expensive. You’ll pay more at restaurants too. Need to purchase a new or used vehicle? Auto prices have risen sharply because of vehicle shortages. Let’s not even go down the road of discussing the rise in gas prices. Because supply chain issues ranging from microchip shortages to hiring challenges are resulting in low inventories for many products, you’ll be paying at least a little if not a lot more for many things.
- Savers Inflation also means the money we’ve saved isn’t as valuable because it doesn’t have the purchasing power it once did. Rising interest rates should benefit savers over time, but right now inflation is taking a real toll.
- Borrowers. Rates are slowly starting to creep up. This means it will cost more to get a loan, obtain a mortgage or spend on your credit card if you don’t pay off the balance each month.
- Investors. Due to the rising interest rates and higher borrowing costs, the market is more volatile. We’re all trying to navigate the uncertainties of the economy – businesses, consumers and the Federal Reserve – and we cannot predict the future
What can we do about it?
- Now is the time to revisit our spending plans or put one in place if we haven’t already. The steady rise of prices needs to be accounted for in your spending plan so you can be sure to manage your financial slack. Our spending plan worksheet is a great way to get started documenting all expenses so you can track everything that is going out. Make adjustments where you can to avoid relying on a credit card or loan to get by. We can’t predict how long this will last and taking on debt without knowing when you can pay it back will put you in a difficult spot.
- Do your best to keep saving. We’re already starting to see interest rates for deposits beginning to rise. In the meantime, you’ll want to do some research to find deposit options that give you the best rates and allow you to meet your savings goals. Credit Human has competitive rates on a range of options. And keeping that financial slack engine running for emergencies is always necessary, especially in volatile times like we’ve been experiencing.
- If possible, save up for what you want instead of taking out a loan or using your credit card. The cost of something you buy on credit is significantly more than what you’ve been used to because both the cost of goods and the price to borrow are both at record highs.
- Prioritize building up your emergency savings even before you start paying off credit card debt. Otherwise, you may find yourself robbing Peter to pay Paul. It’s important that you still make your credit card payments regularly at an amount that meets at least the minimum payment and is within the limits of your spending plan, but don’t worry about making extra payments until you can build up some emergency savings.
- Talk to your investment advisor about the best strategy for your funds. When you will need access to your money will determine if it should be invested in a different way to protect you. Our CUSO Financial Services, L.P. Financial Advisors are here to support your financial journey during this uncertain time.
We’re here for you if you want support getting through these uncertain times. Visit your neighborhood Financial Health Center or make an appointment with a Member Relationship Specialist – real people who will meet you where you are in your life and help you make progress towards your financial goals.