Combat Inflation with Personal Finance Strategies

Inflation rates are down to a little over 3 percent for the past 12 months, but most of us are still reeling from the staggering increases of 7 percent and 6.5 percent in 2021 and 2022, respectively. In fact, between January 2020 and January 2024, consumer price inflation rose 19.6 percent.

Inflation is real and impacts what we can and cannot spend every single day, yet many of our needs remain the same. So, how do you keep up when everything costs more? A big part of it is learning how to manage money during inflation. To help, we’ve put together seven finance tips for inflation.

1. Understand what drives inflation.

Prices increase when demand for an item and its corresponding supply are out of balance. While demand is a prime cause of price increases, what the market will bear, so are increased costs on the supply side. Add to that increases in the money supply like government financial support programs, currency devaluation due to trade, rising wages and Federal Reserve corrections, and the concept of inflation — and ways of combating it — can become quite complex.

2. Update your budget.

Nothing costs what it used to, so your old budget figures are obsolete. Housing costs, often the largest chunk of a budget, have increased substantially, with the average mortgage doubling and many rents close behind. Utilities like electricity, water and sewer costs continue to rise. Vehicle expenses continue to climb as well as those for insurance and gasoline. Add food and clothing and the increase in consumer price inflation, and you see the necessity of a new budget based on updated costs of living.

3. Remove or reduce spending areas.

As prices go up, consumers have a way of saying no by canceling subscriptions or reducing levels of service when those goods and services no longer fit within their budgetary parameters. When income just can’t cover all the expenses, it may be time to be more discriminating and identify anything that can go. Will giving up soda or that cup of coffee save $10 or $20 a week? Do you actually use all of the streaming services you pay for? Cutting small expenses here and there may put $100 or more back into your pocket each month.

4. Find ways to diversify income.

A layoff or cutback can leave you struggling with not only income but also cash flow. Budgets account for not only how many expenses you carry but also when they come due so that the money you need is available. Picking up a side job or finding ways of making passive income can help with the bottom line and timing. Things you can do can range anywhere from renting out a property or an area of your home to selling items that you don’t use or putting your talents to work through any number of venues.

5. Use cash-back credit cards for necessary credit purchases.

Inflation tends to make interest rates on revolving credit accounts like credit cards rise. Currently, the average interest rate for credit cards is around 25 percent, so ideally, you won’t put more expenses on a card than you can pay off in full each monthly billing cycle. However, if you have a credit card with cash-back rewards, using it for purchases that you have to make—like groceries, for example—may help to stretch your dollar a bit further. Just be sure to know exactly which purchases will qualify for your particular card’s incentive programs.

6. Consider opening high-yield checking and savings accounts.

Financial institutions make money from the money they hold for you in checking and savings accounts. In return, you may be able to get better terms on certain families of financial products.

• High-yield checking accounts typically offer free checking, no minimum balance requirements and a higher annual percentage rate on certain amounts of money as long as you agree to certain conditions. For example, one direct deposit monthly, a certain number of debit transactions monthly, electronic statements or online banking programs.

• High-yield savings accounts offer a higher annual percentage rate than traditional savings accounts — 3 percent or 4 percent versus 0.24 percent, for example. The APR earned is often variable and may depend on the amount of money you keep on deposit. Each financial institution has its own rules on maintenance fees, minimum balances, amounts eligible for high-yield APRs and transaction limits. Since you need to have checking and savings accounts, the goal is to have ones that give you the most financial advantages.

7. Work with a reputable advisor to optimize your financial options and investments.

Managing money well is a lifetime skill. While experience can be a good educator, the knowledge and experience of those who specialize in handling financial resources for individual clients can help you avoid costly mistakes and expose you to opportunities you might not otherwise learn about until much later. Financial advisors apply their full set of skills and knowledge of the financial sector to their clients’ unique situations. For you, they can look at ways to make your total financial picture compatible with your financial goals.

Empower Your Financial Future

While inflation is a hot topic for all of us right now, so is the subject of maintaining healthy personal finances. Our finance tips for inflation are focused on making every dollar’s value count for every transaction.

If you’d like to learn more about the forces driving inflation or how to manage your money during inflation, visit ACHIEVE. We’re the perfect place to explore current financial topics and strengthen your financial literacy.