By Jessica Wee
Inflation – the new word that sounds as bad as the four-lettered word, which we are bombarded with everyday in the news media, chats, office and home.
What is inflation?
Inflation is a continuous increase in prices of goods and services. In the case of inflation, the currency gradually loses its purchasing power, so its value decreases in time, so you need more of it to buy the same amount of goods or services. Therefore, the expressions “inflation” and the “decrease in the value of money” are often used synonymously.
Global inflation for 2022 is projected to be 6.7% i.e. twice the average of 2.9% as recorded between 2010-2020. This means the average person reading this article is likely to experience a 3.8% increase in your monthly household expenses.
Before you start feeling like the world is collapsing on you, there are ways that you can fight the impact of inflation on your household’s expenses by cutting grocery and transportation expenses, auditing your budget and avoiding debt.
Here’s how to approach your money management now to fight inflation.
1. Reduce grocery bills
All food categories have increased in cost, but some food items have been hit harder by inflation. Imported goods are far more expensive than locally grown produce.
Unfortunately, food prices aren’t likely to stop rising soon. Here are tips to save on your grocery expenses
Opt for cost-effective foods. Meat prices are among the most elevated due to inflation, so eating more meatless meals is one way to cut back on grocery costs. Try building meals around low-cost staples such as pasta, rice, dried or canned beans, potatoes and eggs.
Canned and frozen fruits and vegetables tend to cost less than fresh, and swapping name-brand products for generic versions can help you save money without noticing a major difference.
Come up with a food spending plan.
Meal plan. Create a meal plan each week to avoid impulse shopping or relying on takeout during the week. To save more, try searching for recipes that use fewer ingredients in the pantry and fridge, or plan meals using your grocery store’s weekly sales flyer.
Do your best to stick with your list, and try going to the grocery store on a full stomach to avoid tempting impulse buys, which can derail your food budget.
Comparison shop. Compare the price of grocery products by weight to determine which option is the best value. You may also be able to save by buying staples such as pasta, canned goods, pancake mix or toilet paper in bulk from stores like Lotus’s (ex-Tesco) or Aeon and hypermarkets.
2. Saving on Transportation
Surging petrol prices are seen everywhere as crude oil prices surged past USD100/barrel. This impacts all of us who need to pump petrol so the best course of decision is to limit our driving. If you are able to work from home, do so.
Running your errands in batches or setting up a community carpooling is an option to get to know your neighbours better and to save some money.
Other options such as public transportation, biking or walking anywhere within a short distance can also save you money.
Lastly, consider lowering the cost of your car insurance. There are general insurance companies that give up to 40% discount if your usage is less than 5,000km for the year. For cars in Malaysia, you can check out: https://www.eagency.my/eagency/
You may also qualify for a lower auto insurance rate in the USA than you’re paying now based on factors such as your credit score and your driving history. Compare your insurance plan on Experian which you can do for free, to see if you can save.
3. Vacations on the cheap!
Airfares are generally 20% more expensive now than pre Covid times. If you are booking flights at last minute or during public holidays, be prepared to pay more.
With dining, hotels and petrol up in price, too, this year’s vacation is likely to cost you more than in previous years.
If it’s a big vacation, it makes sense to just delay it until cash flow improves. There is always an option for staycation, where you stay close to home and visit local attractions, take day trips, eat at local restaurants and relax at home, can save you a lot of money now—This makes more sense than getting into debt over a vacation. You gotta choose your ‘hard’.
If you have your heart set on travelling this year, plan in advance within your budget. Book your flights ahead of time—ideally at least six months in advance—and shop for airfare rates using online savings tools such as Hopper and Skyscanner. Having flexible travel dates can help you select the cheapest flights, as prices vary depending on the day and time of the week.
Remember all those credit card points? Now its time to put them to good use. Redeeming your accrued points or miles for airfare and hotel bookings can save you a lot of money on travel, as long as you avoid paying interest charges that negate your rewards.
4. Stay close to budget
It’s always wise to audit your budget periodically- as especially when drastic price increases squeeze your budget tighter, evaluating your spending and building savings into your budget becomes all the more critical.
If you’re already tracking your spending in a budgeting app or spreadsheet, look over how your spending measures up against your goals. Readjust your spending goals to ensure you’re allocating enough to each category, or commit to reducing spending if you find you’re living beyond your means. If you aren’t already using a budget, now is a good time to start.
Look for areas to cut back eg: idle gym membership and subscriptions Are you wasting cash on multiple subscription services you don’t need? Spending more than your budget allows on retail? Spending less on these discretionary items could give you an instant cash flow boost.
5. Pay down your credit card debt
As the price of just about everything increases, it can be tempting to rely on credit cards to afford your expenses. However, taking on more debt can help stretch your budget in the short term but with this environment of rising interest rates to combat inflation, credit card debt can become even more expensive and difficult to pay down.
Making more than the minimum payment on your credit cards is critical to paying them off.
- To make larger debt payments and get rid of debt faster, consider these:
Adopt a debt repayment strategy ie the snowball or the avalanche method. These methods can help you stay motivated or help you save on interest.
- Consider a balance transfer to another bank with lower interest rates. If you have good credit, most banks are able to provide you with a free interest period which you can take advantage of to help you consolidate your debt and save on interest while you make payments.
- Consider swap out credit card debt for a lower interest debt consolidation loan. Like the balance transfer strategy, consolidating your credit card debt into one loan can be a good way to manage your debt by allowing you to make just one payment a month, ideally at a lower rate. But be sure that your score qualifies you for better terms before you apply. If you do get a loan, commit to not using your credit cards or you could end up in an even more serious situation.
- Consider freezing your credit card in the fridge. If you cannot practice self-control, take a drastic action to keep your credit card out of sight until you make a promise to yourself to pay off the balance.
- Consider reporting that your credit card is stolen. If you are one of many who struggles with overspending on their credit card that you have even memorised, deleting it from your online wallets is not going to help. Try calling your card company and report the card as stolen, such that a new card with a new number would be issued. Plan on keeping this card out of place so you are not tempted to spend it.
6. Earn While Saving
Most saving methods can’t outpace the rate of inflation, but putting your money somewhere where it will bear higher interest rates can reduce the eroding effects of inflation.
For a long-term savings option, investing in direct low risk bonds or bond funds are a smart choice because they’re designed to match or beat the rate of inflation.
For savings, you need to keep liquid, such as your emergency fund, and find a high yield savings account that can help you earn more interest than a traditional savings account.
7. Create additional income streams
When all methods of fighting inflation are still decreasing your spending power, look no further than your own effort. Here are a slew of more interesting business ideas in this link to kick-start your motivation engine!
As with everything in life, we can only do our best. Inflation is inevitably going to make all our basic housing, energy, food and transportation costs more. Cutting back on every aspect of our life will be hard in the short term but always bear in mind the longer term joys and relief.