The word that’s got everyone trying to manage their money on edge: inflation. Between December 2020 and December 2021, the Consumer Price Index (which measures the average prices of groceries, housing, and other necessities) rose 7%, the biggest year-over-year jump in 39 years.
The Federal Reserve — the central bank that handles US monetary policy — says it's on the case. And could soon start pulling back some extra pandemic help it's been giving the economy, which could slow price hikes. The White House says, it's working on it, too. President Joe Biden recently met with meat and oil industry leaders to address the problem. And the administration is putting $1 billion in funding towards smaller, independent meat and poultry producers to increase competition and lower prices.
While lawmakers work on ways to handle inflation, you can work on your wallet. Some ideas:
1. Bring your budget up to speed. Still relying on last year's spending plan, from when everything was considerably cheaper? It’s probably time to switch it up. Make room for the necessities — including their higher prices — and your money goals. Then consider where you can cut costs or negotiate some down.
2. Shop smarter. Comparison shopping is especially important when prices are on the rise. An app like GasBuddy can spot the lowest price at a pump near you. And online tool Basket can help you find the best deals on groceries.
3. Get rewarded. Your credit card can help you get money back on spending you have to do anyway. Make purchases on a card that offers a statement credit, travel points, or other rewards every time you swipe. Or if you want to rack up cash back but not a balance, try apps like Honey and Rakuten.
4. Go for yield. For your emergency fund and other short-term savings you need easy access to, look for a high-yield savings account. These help your money grow (a little) faster than in a checking account or regular savings account that offers low or no interest. The average savings account pays 0.06% in interest vs. high yield accounts, which can earn around 0.5%. Not enough to beat inflation alone, but it helps.
5. Don't keep more in savings than you need. Cash isn't king during periods of high inflation. For far-off goals like buying a home, sending a kid to college, or retiring, investing gives you the best chance at growing your money. Stocks are most likely to beat inflation because they offer the highest potential returns. Keep in mind: higher rewards = higher risks.
Speaking of risk...some pros say investing in commodities and crypto are ways to hedge against inflation. In fact, some people call Bitcoin “digital gold.” Because, like gold, Bitcoin is finite — there's a cap of 21 million bitcoins — and not tied to a monetary policy. As in, no one can increase the supply, like the Fed can with US dollars to help the economy grow, which can lead to inflation. But buyer beware: alternative assets aren't a foolproof way to beat inflation. Both commodities and digital currencies can experience sharp price swings.
6. Be passive about earning more. As in, set up some passive income streams. One idea: if you have a spare room, storage space, or parking spot — or maybe pricey tools like a lawnmower or snow blower — you can rent them out for some extra cash with minimal extra effort.
7. Be assertive about earning more. As in, consider asking for a raise. Especially in the current crazy job market. Many employers may be willing to up pay to keep talent while so many people are calling it quits.
The million dollar question. Fed boss Jerome Powell recently cut the term “transitory” from his vocab, which he previously used to describe the US’s current inflation situation. The latest theory many experts agree on is that inflation will likely be around through most of 2022. And omicron and any future variants aren't going to help.
Inflation affects just about every part of your financial life. Though you can’t control inflation, you can control your budget — and adjust your spending when possible.
Updated Jan. 12 to include the most recent inflation data.
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Skimm'd by Liz Knueven, Casey Bond, Kamaron McNair, Stacy Rapacon, and Elyse Steinhaus