Inflation is back, baby! The last time inflation was this bad, I was literally a toddler. Now, I don’t have specific memories of that time . And if I did, they would likely be of Sesame Street and not monetary policy. But I do have stories I remember my parents telling me. They talked about 13% mortgages and CD’s (certificates of deposit) that paid 10%. I remember my passbook savings account back then used to earn decent interest. Back when I first bought I – bonds (inflation protected savings bonds – more about them later) in the early to mid 2000’s that they paid more than nothing. So I’m not a total stranger to inflation, and I remember early in my personal finance nerd journey, often reading about strategies to fight inflation. Although like many people, it hasn’t been this bad in my adult lifetime.
But the inflation rate overall is not necessarily your personal inflation rate. Your income, investments, savings, and expenses are all obviously impacted by inflation in general. But your personal experience might be much better – or worse! – than the overall numbers. And with some thought and careful planning, you may be able to keep your personal inflation rate down. Certainly you can minimize the impact of inflation on your buying power.
Here’s ten different strategies on my mind as I look to keep our family’s budget – and savings – as protected as possible from inflation.
Buy in Bulk and Buy it Now
Don’t worry, I’m not going all Robert Kiyosaki on you and telling you that your future is in tuna fish and beans.
But I will say that if inflation is in our future, buying in bulk and buying now to use later are valid spending strategies. I’m glad I’m a member of a warehouse club – BJ’s specifically, since Costco is too far away. I’m loving bulk buying, saving on gas, and generally saving money compared with the grocery store.
At our house we have a chest freezer and two pantries. One of the pantries we had pre-Covid, and the other we set up during the pandemic. We keep both pantries fully stocked and the freezer filled with food. You can also buy in bulk from “loss leader” grocery store sales, stocking up to use later. When inflation is strong, tomorrow’s loss leader is likely to cost more than today’s.
Now if you live somewhere where space is at a premium, you may not be able to buy or store as much. Think creatively! There’s likely space under the bed, on the floor of your closet, maybe an empty cabinet. Heck, the standing pantry we got during the pandemic was from Amazon and it’s in our dining room. Your storage doesn’t need to look like a gorgeous Container Store ad. It just needs to work.
Back To Basics – Track Your Spending and Budget
Yes, tracking your spending when the cost of ~everything~ is going up can be depressing. But it’s also necessary. You need to see where costs are going up to determine what you might need to cut out. Likely the highest cost increases you’re seeing are in gas and food, with other goods not far behind.
The only way to know how much inflation you personally are experiencing is to track your spending. I’ve spent many years tracking my spending and holding closely to a budget. Although I also spend years where I just automatically save/invest for my goals and spend what’s left. In an environment where costs are changing significantly each month, tracking spending more closely is key for me.
Buy (or Get) Used When You Can
I’m a huge fan of shopping at thrift stores, consignment shops, and tag sales. Not only is it better for my wallet, it’s better for the environment. Even when the cost of buying used goes up due to inflation, it’s still much more affordable than buying new. And I’ve found at least locally, shopping used is less likely to be disrupted by supply chain issues.
I can think of multiple times in the past few months where I could have bought new but instead decided to get used. The first is when I needed to get a dress for a work event. I don’t know about you, but I don’t own a whole lot of dresses in the first place. Let alone have a nice dress appropriate for a work event that fits well. I was initially dreading going to the mall to get one, but hit up my favorite local consignment shop first. And I’m glad I did! I found a lovely Calvin Klein black dress and a wristlet, nd bought both for probably a quarter of the cost of new.
And just a few weeks ago I had to get a picture frame. We had a photo taken at the Norwalk Maritime Aquarium me, hubby and the little guy (who is obsessed right now with seals!). He specifically requested a “golden” picture frame. For that we checked out Goodwill first and sure enough we hit the jackpot. There was not only a whole aisle of picture frames of all shapes and sizes. But there was also the perfect golden frame with a blue boarder. Perfect for an aquarium memory!
In terms of “getting” used instead of buying, don’t forget about your local Buy Nothing groups. I’m a member of my local group on Facebook. Although I don’t post often, I did hit the jackpot before Christmas. My youngest wanted Skylanders – he was obsessed with playing his older brothers Skylanders games at the time. But they don’t make the figures anymore. So I “put out the word” (as Amy Daczyn used to say” in the local group and *bam*! Someone had an entire container full of figures in their garage that their kids didn’t play with anymore. It was a perfect Christmas gift, cost nothing, made my little guy happy, and cleared out room in their garage. Win/win!
In addition to Buy Nothing, remember bartering, sharing, and borrowing are also great ways to “get” things for less. You can exchange goods or services for some other good or service, benefiting both the giver and recipient. Maybe you want to share costs instead. Like if you and a few neighbors need a rototille, instead of buying separate ones you all use a few times a year, you go in on one together. Or perhaps you can borrow something that you use infrequently. Our library is great for that! And sometimes we rent tools from Home Depot if we only need to use them once a year.
Kick Up Your DIY
During the early days of the pandemic, DIY became a necessity due to shortages of food, goods and services. Now that things are getting back to… well not normal but a more normal place, we can hang on to doing it ourselves rather than outsourcing if we want to fight inflation. Baking your own bread, canning food, sewing, building things, and so on are all “productive hobbies“. They can ultimately save you money if you do them in a cost-effective way.
Even if they don’t save you money – because, for example, you had to buy a sewing machine – they can provide entertainment and a productive outcome at a reasonable cost. Feel free to use the prior tip to get supplies from someone who picked up a pandemic hobby and now wants to leave it all behind.
Kon Mari Your Expenses
Does that expense really bring you joy? If it doesn’t, get rid of it.
“But Liz,” you say, “paying my electric bill doesn’t spark joy, but I can’t get rid of it!”
I see it differently.
The basic necessity costs for food, clothing, shelter, transportation, child care and the like do ultimately bring me joy. They make my life much better than if I weren’t paying for them. I find it important to differentiate between (a) spending at the basic level necessary for living versus spending extra and (b) a need expense and a want expense, in my own spending.
For the record, I spend plenty on things that cost more because it’s worth it to me. And I have plenty of things I buy that are wants and not needs. Every once in a while, I more closely examine my spending to make sure it’s still “worth it”. I may need to work more hours to afford the thing than I did before. And those more hours may or may not be worth it to me. I want to make sure I’m still spending money in places where it “sparks joy” and not out of habit or laziness.
Use It Up, Wear It Out, Make It Do, Or Do Without
This was a popular saying in hard times in American history, like the Great Depression and World War 2. It’s still helpful today. The best way to save money is to not spend it in the first place. Using up what we have already around the house; wearing clothing and using goods until they’re totally worn out (not just until we’re tired of it or it’s unfashionable; making do with what we already have; and doing without as long as possible helps keep costs down.
Lately my youngest and I have been doing this with our recycling – using them to make new crafts and creations. I made an ostrich out of boxes (to make a funny video about the ostrich strategy, coming soon!) and paper towel/toilet paper rolls and he made a flying creation out of water bottles and feathers. In the past we’ve made a giraffe out of a shoe box and a frog from a pizza box and egg cartons.
Buy Low-And Do the Ostrich
The specter and doom and gloom headlines announcing inflation, pending rate hikes and a looming recession are driving the market down to early 2021 levels. Now is the time to continue investing and letting the down market buy you more shares, which will benefit you down the line. I learned back in the 2008/2009 Great Recession that sometimes I just need to not look at my accounts when seeing them down bothers me.
That’s what I called the “Ostrich Strategy” – just stick your head in the virtual sand and go live your life, continuing to automatically invest, and ignore the noise around you for a while. Make sure to periodically rebalance according to your investment policy statement (likely annually or using a certain threshold). Personally I plan to ignore the media headlines and keep to my boring index fund investment plan.
Check Out I bonds (Ladder If You Need To)
Ah, Series I savings bonds, the recent unexpected hero of our inflationary environment. I have some I Bonds which function as a back-up emergency fund, although I got used to them paying hardly anything for years and years. The only reason I hung on to them was that they typically paid more than a savings account did, especially because I have some older ones from early-mid 2000’s which pay a fixed rate on top of the variable, inflation indexed rate.
A quick primer if you aren’t familiar – I Bonds, or inflation indexed savings bonds, pay a variable rate that resets every six months which is based on inflation. In addition, some of them pay a fixed rate. Although in recent years the fixed rate has been zero, the inflation indexed component of the rate usually means you’re getting an OK return on your savings. Once you buy an I Bond you can’t sell it for twelve months, and if you sell before five years is up you’ll lose three months interest. They’ll continue earning interest for up to 30 years. The most you can buy in a year is $10,000 per person – so if you’re married each of you can buy up to $10k per year. More can be found here at the Treasury Direct site, which is also where you can open an online account to buy them.
I personally made I Bonds part of my emergency savings plan even before recent inflation. Recent events reminded me to make sure to put more of my savings into I Bonds, and I bought some more for myself and my husband. After all, savings accounts are paying a paltry 0.07% interest on average. Even high yield savings is paying under 1% (at least for now, before rates are raised). This strategy is intended to preserve the spending power of my savings, without taking on additional risk. Even if I have to sell early, I’ll still have earned more overall than by keeping my money in a savings account.
Luckily I Bonds are also easy to ladder, if you don’t want to lock up all your money for twelve months. You can buy as little as $25 at a time, set up an automatic investment plan, and ladder in your money so some of it will free up every month. I would definitely recommend checking them out if you haven’t already.
Optimize Your Savings (Even If You’re Still Losing Money)
Your savings accounts have many important functions. They’re there for your shortest term goals where you can’t risk losing any of your money in the market. They’re there to help you in emergencies. Now of course you don’t expect to make a lot of money on your savings, that doesn’t mean you shouldn’t optimize your savings to minimize your losses.
First – make sure you don’t have too much in checking or savings. I don’t know about you, but over the course of the pandemic, I definitely beefed up my emergency fund quite a bit. At the start, when the pandemic first hit, I was concerned about job losses. That’s still something I want to protect against, and of course there’s still a lot of instability in the world which could lead to other emergencies. So although I still want to have a solid emergency fund, I do want to make sure I’m not keeping too much there that I could use for more longer-term goals. And I want to ensure I don’t keep much in checking earning nothing.
Second – make sure you’re optimizing your accounts. The average savings account only pays 0.07% in interest today, but a high yield account may pay more than ten times as much. Money market accounts or money market funds also may pay higher rates. You might be able to put part of your savings into a different type of account (like an I Bond, above) which is still safe but pays more. And pay close attention to this, because as rates rise you may find more or better options for your accounts.
Check Your Compensation
In an inflationary environment, if your pay isn’t keeping pace with inflation, your buying power is going backwards. Now is the time to make sure you’re getting all the types of compensation that you’re eligible for – 401k match anyone?. And now is a time to make sure you’re taking action to earn more.
We all recognize that it’s not uncommon for annual raises to not equal inflation, for a lot of valid business reasons. According to this Forbes article, a survey of US companies found employers budgeting an average salary increase of 3.5%. You want to ensure, especially in an inflationary environment, that your salary is overall keeping pace and ideally going up because you’re growing your career.
That means doing things like:
- Working towards promotions
- Improving your skills
- Carving out time to work on your overall career
- Making sure you’re tapping into all your compensation and benefits
- Ensuring your company is committed to both paying fairly and re-evaluating pay ranges frequently.
Women are often generally underpaid compared with men to start with, especially minority women. So make sure you’re earning what you deserve!
Tell Me Your Tips To Fight Inflation!
What kinds of things do you look at to battle inflation and keep your personal inflation rate down? Let me know in the comments.