7 tips for budgeting during inflation
Gas prices are high. Food costs are rising. Everything is going up and everything is due to inflation. While the war in Ukraine was a catalyst for rising prices, the domino effect only seems to be getting worse. Experts have concluded that price increases will continue to rise
In an effort to avoid a new recession, the Federal Reserve raised its key interest rate by 0.75 percent. Interest rates are the federal government’s main tool for fighting inflation in order to reduce spending. Raising the interest rate is considered one of the more aggressive tactics that the Federal Reserve can take and a signal that things are getting very serious.
But what should people and families do during this time. Without the predictable end of the effects of inflation, it is important for people to mitigate the damage to their personal finances that all this causes.
Here are seven helpful tips for personal finances that people can use instantly to protect themselves during this uncertain time:
- Accelerate purchases: One will want to speed up the purchases of goods and services that one knows will be needed next year, as such goods and services will be more expensive in the future. For example, a person will now want to buy non-perishable groceries / groceries, such as canned food, toilet paper and detergents, and will now want to hire contractors to carry out home repairs, as postponing such payments will lead to the need to pay. higher prices in the future.
- Purchase of goods in bulk / Package of services: A person will want to start buying goods in bulk. For example, an individual will want to buy consumables (examples: paper towels, toothpaste, hair products, shaving products, etc.) in bulk to get a lower unit price for these goods now and to avoid the need to buy such goods in the future at higher prices. For services, one will want to try to combine phone and data, home internet, software and other recurring services for better prices.
- Consider housing loans: In order for a person to be able to buy goods and services now and buy goods in bulk, the individual may need to assume some production debt. Productive debt includes loans for equity, which allows the individual to borrow against equity in the home of the individual at a relative interest rate on the loan. Raised funds can be immediately used to make purchases now at prices that are lower than they will be in the future. Furthermore, as inflation effectively reduces the value of the dollar over time, the need to repay the principal of the equity loan in the future will be virtually cheaper, as these payments will be made with less valuable dollars. However, productive debt does not include credit card debt, as credit card debt must be avoided at all times, including during inflation.
- Buy outside brands: One will want to buy goods outside the brand, especially when buying groceries, during periods of inflation. Off-brand goods, including cereals, detergents, detergents and many other food products, can often save the individual 10-15 percent compared to branded goods, while allowing the individual to benefit from significantly the same quality. . These price savings can offset higher prices as a result of inflation.
- Put extra money into interest-bearing investments: With inflation, interest-free money effectively loses value because $ 1 today will have less purchasing power in the future. One will want to make sure that all the extra money is invested in interest-bearing accounts or other investments so that the extra money does not lose value, as interest helps to compensate for the reduction in value caused by inflation. During inflation, interest rates usually rise. Additional cash may be invested in interest-bearing savings accounts, money market accounts or certificates of deposit, or may be lent to others for interest, or may be invested in stocks and bonds that provide a return in the form of dividends. and profitability that keep pace with rising inflation costs.
- Buy and hold real estate: A person will want to buy and hold real estate during inflation. Real estate values usually increase with inflation, so the buyer and real estate owner will see an increase in the value of their real estate equity, which allows the owner to keep wealth and borrow against higher real estate values. . This is different from holding cash or some other type of investment, which is much less likely to increase with inflation.
- Consolidated vehicle trips: Gasoline prices often rise during periods of inflation. For an individual who likes or needs to drive a gasoline vehicle, gasoline prices can reduce an individual’s savings. Planning and consolidating trips with a gasoline vehicle allows the individual to reduce the miles traveled and the amount of gasoline required. For example, if a person has to go to a hair salon, grocery store, gym, and gas station instead of taking four separate trips, the person must combine all of those trips into one trip.
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