Don't buy what you can rent. Don't rent what you can borrow. Don't borrow what you can get for free.
It's time to invoke the vacation house rule
No. 8
Back in early February I wrote a post that described what inflation is and what causes it. At that time, I was hoping that the Federal Reserve would be able to get inflation under control, but that was before the war in Ukraine along with actions taken to sanction Russia put more strain on already strained supply chains around the globe.
“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” - Ronald Reagan
If you drive a car, or take Uber, you’ve likely felt pain at the pump. In some parts of California premium gas in above $7.00 per gallon. Food costs are rising as well. I was on a ski trip last month and saw a $22 grilled cheese sandwich on the menu! So, inflation is with us and will be for a while. Efforts by the government to soften the affects by issuing gas cards and checks to purchase food will only make the situation worse. And that raise you recently got; it won’t really help either. Unless you have a big trust fund it’s time to get serious about finding ways to cut monthly expenses.
Tips to beat inflation
Consumer prices increased 7.9% in February 2022 compared to the prior year. This is the highest level of inflation in 40 years. Prices on just about everything are increasing, which means you are losing purchasing power. Like boiling a frog, most will sit in the pot and not notice that the temperature is rising until it is too late. It is best that you take some steps to address the effects of inflation on your personal finances now.
Limit your wants and focus on needs
Warren Buffet’s business partner, Charlie Munger, said that “one of the best defenses to being worried about inflation is not having a lot of silly needs in your life.” If you haven’t taken the time to build a reasonable budget for yourself, now is a good time to start. Even if you have a budget take some time to go through it and understand where you are spending your money and identify problematic spending habits.
Negotiate lower prices on big monthly expenses
It’s time to start calling the cable company, phone company, streaming services, etc. and negotiate lower prices. If they won’t budge, then threaten to go to a competitor or simply cut the cord. Most of the time you will be successful in lowering your costs. The worst that can happen is they say no, but much of the time they say yes.
Time for the Lifeboat Drill those subscriptions
Go through your credit card statement and find those little expenses (subscriptions) for everything from storage to razor blades and do the Lifeboat Drill. Let’s say that you find that you have six subscriptions, but your lifeboat can only fit four. Ask yourself the following: When was the last time I got value from this subscription? Can I do without it for a while? Can I find a cheaper substitute? Then decide which ones you will throw overboard.
Postpone big ticket purchases
If you’ve been looking at new or used car, consider holding off. Prices of both have skyrocketed since the pandemic. Hold on to your clunker a bit longer and try to keep it in good shape. Yes, the old car is ugly, smells funny, and has some mechanical issues, but even a $2,000 brake repair is cheaper than new monthly car payments. Embrace your grandmother’s 2008 Honda Accord and buy and air freshener.
A general rule I like is to wait a day before you make a big purchase. Give yourself time to think about whether the item is a need-to-have, or a like-to-have.
Lower your commuting costs
If you are back in the office and driving or taking public transportation to work, consider riding a bike or walking. Too far to do either, then find someone at work to carpool with and share the gas expense. Also consider a gas card that offers a discount at the pump or cash back.
Watch credit card spending
Credit cards can be a good financial tool when used responsibly. There are numerous credit cards that provide cash back on purchases such as groceries, dining, and travel. I plan to research the best ones in the future. Until then, be careful not to overspend as the interest rate and fees on most cards adds up quickly.
Groceries and dining out
Food prices are high, and they will likely get even higher. Instead of wasting money throwing away that blob that used to be a zucchini, try planning out meals and buying only what you need to eliminate waste.
Look into apps that help you save on groceries and other items like ibotta, Rakuten, and others that give cash back on purchases.
Don’t be so quick to accept Amazon Prime prices. Shop for deals.
Join a warehouse club like Costco, Sam’s Club, or BJ’s Wholesale. You can buy nonperishables in bulk and divide them amongst friends to share the cost and save.
Bring back the dinner club. Have a theme like French cooking. Each member of the club is then given a part of the dinner to prepare – appetizer, main course, dessert, libations. Other than the alcohol you must find a recipe and cook. Think of how much fun you’ll have watching reruns of Julia Child. You’ll learn a life skill and how to deal with failure if it all goes wrong. And if it all goes wrong, order pizza and have enough to drink.
Invest in yourself
Invest in yourself and stay current to changing business needs. There are plenty of ways to do this inexpensively through local colleges and online courses. The goal here is to be a key employee who is critical to your business and hopefully command a higher salary. If your salary can rise at the rate of inflation or above, you’ll be ahead of the game.
Investing during inflation
Given the level of money printing the U.S. government has undertaken in the past three years, I am surprised that it has taken this long for us all to experience the effects of inflation in our daily lives. I have made it very clear that I do not want to give specific investment advice although I have been doing a fair bit of research on ways to invest during periods of high inflation. I found this article to be a good summary of ways to invest. If you are like most young people who have ventured into the public equity markets, chances are you have been long growth stocks and not well diversified. It is probably a good time to rethink that strategy to get the most out of your investment dollars.
That’s it for now although I think we will be revisiting this topic in the future. I know that many of these suggestions sounds austere but saving more sooner will make the road ahead a lot smoother. If you have some good tips on how to conserve cash during inflation, feel free to share them in the comments.