By: Lindsay Tigar HerMoney featuring Taylor Sutherland, CFP®, CIMA®, AIF®, Senior Wealth Advisor at Halbert Hargrove
You have to watch out for your wallet when inflation is high, and ever-climbing like it is today. Here’s what to keep an eye out for.
By now, you’ve probably seen inflation on full display at your local grocery store or gas station. You’re paying more for… well, everything. According to a recent Federal Reserve survey of CFOs, 80%t of companies will pass rising costs to consumers, and prices are expected to rise two times higher than wages.
But just how, exactly, did we get here? During the pandemic, many people lost income, and companies had to manage with low sales. The government tried to do its part to fight against a recession by investing in the economy and sending out stimulus checks. But none of this was enough to prepare for the uptick in demand once the world started to open its doors again, explains Neale Godfrey, author of “Be Money Smart In Tough Times.”
“Some industries [that were forced to shutter for a period of time during the pandemic] couldn’t gear up again quickly, and couldn’t get things to market fast enough. A tiny semiconductor was all of a sudden in short supply. You can’t make a car, a computer, gaming hardware, medical equipment, and thousands of products without them,” she continues. “Then, lots of truck drivers were suddenly in demand to deliver all of the things consumers were buying, and there simply weren’t enough. Workers were not coming back to work fast enough to keep up with demand, and employers had to lure workers out of their fuzzy slippers by raising wages.”
Add this all up, and what do you get? Inflation. Specifically, inflated costs that will be paid for by the consumer. But when many of us are still trying to rebound from a lack of savings and/or a depleted emergency fund, these costs can be difficult (if not impossible) to swallow. That’s why we rounded up some tricks for how to fight back against inflation, and hang onto your hard-earned cash.
1. HOUSING COSTS
During the pandemic, rent prices first significantly dropped as a way for landlords to keep tenants in big cities instead of losing their paying customers to the far less expensive suburbs. However, those rent prices are now higher than ever (Manhattan’s are up by 23%, nearing an all-time record) and when the rental market is unstable, generally we see home prices rise as well. In short, whether you’re looking to rent or buy, things are more than a little crazy right now.
Keep in mind that as interest rates increase, so will mortgage rates, Godfrey says. “This may dampen demand for homes,” she continues. “If you are set on becoming a homeowner, look at the trade-off between the higher initial cost versus waiting and paying higher mortgage rates.” There are options for cutting down on housing costs. Taking on a roommate would be a tried-and-true option for anyone with a spare bedroom, and if you don’t want someone in your space full-time, you can consider Airbnbing your spare room for shorter periods of time. If you have the cash, you could look at buying a two-family home and renting out one side, or if things are extremely tight for you right now, you can explore moving in with family, if it’s an option for you.
2. RESTAURANT COSTS
Between the rising costs of food and workers’ wages, restaurants are going to have a tough time keeping pace with the cost of their overhead, says Emily Boothroyd, CFP and partner at Merit Financial Advisors. This means the cost of your salmon filet or brunch burger is going to get higher because owners will need to pay more for their initial costs, and for paying their staff. “Many restaurants will seek to keep their profits intact by raising costs to the end consumer,” Boothroyd says.
So, how can you keep your dining out budget manageable? First, set a budget and stick to it. Try to seek out restaurants that offer seasonal ingredients, so they aren’t paying through the roof for extra shipping or transportation costs. And the next time your friends suggest a brunch date, don’t be shy about encouraging a walk through a farmer’s market, or a stop at a food truck instead.
And Boothroyd says to keep an eye on wine and alcohol prices — they often have the highest markup, and people don’t often notice price creep in this area. (Especially when good times are involved.) If you can find a restaurant that offers BYOB, go for it.
3. SUBSCRIPTION FEES
Nearly two years into the pandemic that’s kept most of us at home much more often than we would like, you probably have more subscriptions than you realize. Think about it: Netflix, Hulu, Amazon Prime, Costco, Sam’s Club, HBO, The New York Times, the list goes on. Or maybe you started a book-of-the-month club, or some other monthly subscription service so you’d have something coming in the mail to look forward to each month. Yes, these items make life easier, and more enjoyable, but they also add up fast. And they’re about to get more expensive, too — companies are going to try and offset their increasing costs by increasing the cost of subscription fees, warns Taylor Sutherland, CFP and senior wealth advisor at Halbert Hargrove.
It’s time to be incredibly rigorous about checking your monthly spending to see if you actually used the service or subscription enough to warrant the cost. If you’re barely using it, you probably don’t need it and can cancel at any time.
This devious tactic has been around for decades — and you may already be a victim of it without even realizing it. To put it simply: businesses don’t want to scare you away from their product by raising their prices. So, rather than increasing the cost, they shrink the size, but charge the same. For instance, Godfrey says Chobani Flip recently reduced the size of its yogurt from 5.3 oz to 4.5 oz, a 15% decrease — but the price didn’t come down in relation. She’s also seen it with bags of Milky Way’s “fun-sized bars” — they’re now down three-quarters of an ounce per bag, but with no price drop to match.
Before you head to the store, check the labels on all the products you buy regularly so you’ll know if anything has decreased in size. If you have kids, turn it into a game for them, Godfrey suggests. Have them become “label detectives” who scour the store for prices to make sure you’re not being tricked. “They can look at the products you buy before you leave the house and when you hit the store, let them check out what the new products contain in volume versus price,” she says. If you do find that prices for your favorite items have increased, start looking at generic brands to save money, and don’t forget about lower-cost stores you might not have tried in a while, including Aldi, Walmart, or even dollar stores in your area. If you aren’t seeing good prices at your usual stops, then it’s time to find new ones.