How to combat inflation
Updated: Apr 20
We have all seen it! Our dollar isn't going as far as it used to. Inflation is at a 40 year high and there is no sign of prices coming back down any time soon.
So what do you do?
Before we can figure out what to do, it helps to better understand what inflation is.
Inflation measures the rate at which the general price level for goods and services is rising, which leads to a decrease in purchasing power. Central banks, such as the Federal Reserve in the United States, strive to limit inflation and avoid deflation to keep the economy running smoothly. Interest rates play a key role in this process, with higher rates curbing inflation and lower rates contributing to it.
Inflation in Detail
Inflation occurs when there is an increase in the overall price level of goods and services in an economy over a period of time. As inflation rises, the purchasing power of each unit of currency decreases, which means that you can buy fewer goods and services with the same amount of money.
There are several factors that contribute to inflation, such as:
Demand-pull inflation: This happens when demand for goods and services exceeds supply, causing prices to rise.
Cost-push inflation: This occurs when the cost of production for goods and services increases, leading to higher prices for consumers.
Built-in inflation: This refers to the expectation of future inflation, which can cause businesses to increase prices and workers to demand higher wages, further contributing to inflation.
The Role of Interest Rates
Interest rates and inflation are closely related, and changes in one can have an effect on the other. In general, higher interest rates can help to curb inflation, while lower interest rates can contribute to higher inflation.
When interest rates are high, borrowing money becomes more expensive for people and businesses, which can dampen economic activity and demand for goods and services. This can help keep a lid on prices and prevent inflation from rising too quickly.
On the other hand, when interest rates are low, borrowing money becomes cheaper for people and businesses, which can stimulate economic activity and demand for goods and services. This can lead to higher prices and contribute to higher inflation.
Now let's talk about what you can do to fight inflation and stay financially fit.
How to make more money during times of inflation:
Making more money is something I'm sure everyone has on their mind. It isn't always easy, but there are a ton of ways to get out there and make more money. I've already got a list of the most common and lucrative "side hustles" out there. Along with a list, I've also included advice on how to get started with each of these side hustles.
There are numerous ways to increase your income during high inflation, such as exploring side hustles, negotiating your salary, or utilizing platforms like Swagbucks to earn gift cards through various online activities.
Side Hustles to Boost Your Income
Many individuals have turned side hustles into full-time careers, such as The Millennial Money Man or Making Sense of Cents. Explore your options and consider which side hustle aligns with your skills and interests.
Leverage your skills in writing, graphic design, programming, or other areas to find freelance work on platforms like Upwork or Fiverr. This allows you to earn extra income on a flexible schedule and build a portfolio for future opportunities.
If you have expertise in a subject or language, consider offering online tutoring services. Platforms like VIPKid or Tutor.com connect tutors with students in need of extra help, providing a way to earn additional income while sharing your knowledge.
Create an online store to sell physical or digital products, or consider dropshipping, where you sell products without holding any inventory. Platforms like Shopify or Etsy make it easy to set up a store and reach potential customers.
If additional work isn't your thing, then you can negotiate your salary. Research industry salary trends, prepare a case for why you deserve a raise, and practice your negotiation skills before approaching your employer.
How to save more money during times of inflation:
To counter the effects of inflation, consider ways to save money on everyday expenses, such as using Swagbucks for discounts, exploring The Saving Dude's Save Money section, or opting for cheaper alternatives in your daily life.
Swagbucks is a platform that allows you to earn points (called Swagbucks or SB) by completing various online activities, such as taking surveys, watching videos, or shopping through their affiliate links. You can redeem your accumulated points for gift cards or cash, providing a way to save money on future purchases.
Saving Money on Everyday Expenses
Visit The Saving Dude's Save Money section for practical tips and advice on cutting costs in various aspects of your life, such as groceries, gym memberships, and more. Some additional ideas for saving money include:
Comparing prices at different stores to find the best deals
Utilizing cashback apps and websites to earn rewards for your purchases
Cooking meals at home instead of dining out or ordering takeout
Canceling unused subscriptions and memberships
How to spend less money during times of inflation:
Reducing your spending during high inflation can be challenging, but it's possible with some creative strategies:
If feasible, postpone large expenses for 6-9 months and invest your funds in low-risk options like CDs. These investments can help your money grow while you wait for prices to stabilize, providing additional funds for future projects.
Adjust Your Diet
Replace expensive food items with cheaper, healthy alternatives like eggs, oatmeal, and popcorn. For example, consider the following meal swaps:
Swap fish and steak for more affordable protein sources like beans, lentils, and tofu
Replace store-bought snacks with homemade options, such as granola bars, fruit, or trail mix
Opt for seasonal produce or frozen fruits and vegetables to save on grocery costs
Extend the Lifespan of Items
Stretch the use of everyday products like toothbrushes, soap, and household cleaners by using them more efficiently or repurposing them for other uses. Additionally, learn about the true "expiration" dates of food to reduce waste and make the most of your grocery purchases.
Other ways to combat inflation:
One way to combat inflation is to invest in assets that tend to hold their value or increase in value over time, such as stocks, real estate, or precious metals. These types of investments can provide a hedge against inflation, as their value may rise as the purchasing power of money falls.
Another way to combat inflation is to shop around for the best prices and look for deals and discounts. By being a savvy shopper and carefully managing your budget, you can stretch your money further and make it go further in the face of rising prices.
Additionally, some people may choose to reduce their expenses and save more money in order to protect themselves from the effects of inflation. By building up a savings cushion, you can have a buffer against unexpected expenses and maintain your standard of living even if prices rise.
Overall, the best way to combat inflation will depend on your individual circumstances and financial goals. It may be helpful to speak with a financial advisor or professional to determine the best strategy for you.
The best approach to combat inflation will depend on your unique circumstances and financial goals. Consult a financial advisor or professional to determine the most suitable strategy for you. Share your experiences and tips for dealing with inflation in the comments below.
I'd love to hear from you, how you are ensuring that inflation has a lower impact on your household?