Ever since money was invented, inflation has been a problem. Thanks to the COVID-19 pandemic and resulting disruptions to the economy, it promises to be a bigger problem than usual in 2022.
While it's true that inflation has some benefits for the average consumer – increased home values, for example – it nevertheless hits everyone with higher costs for everyday essentials like food, transportation and utilities.
With the Consumer Price Index (CPI), the government's main gauge of inflation, rising 5.4 percent in the 12 months ended in July, consumers will need to take a close look at their spending in 2022.
Here are a few of the most obvious ways to hold the line on spending in the new year:
Get control of cable and internet spending
A few decades ago, telephone company executives were giddy about the possibilities opened up by deregulation but feared that consumers would never sit still for anything more than a $30 monthly phone bill. Today most families have multiple cellphones, a broadband and/or cable TV account and numerous apps, channels and streams often totaling hundreds of dollars a month.
A few ways to trim telecom costs:
- Eliminate the land line. Do you really use it? In most households, the land line has become little more than an entryway for nuisance calls.
- Ditch the cable. A broadband subscription runs around $60 to $90 in most areas and with the addition of a couple of streamining services, you can do without that $200 dedicated cable access.
- Go easy on hardware. Yes, that 90-inch high-def screen looks great but the $3,000 price tag is a little rich for most budgets and the average life likely isn't any better than a smaller, cheaper unit.
Review your insurance coverage
Insurance is intended to help pay major expenses that we would otherwise not be able to afford, it's not really designed to relieve us of routine maintenance and repair costs. Being under-insured can be catastrophic but being over-insured can be needlessly expensive.
A few things to consider:
- Car insurance. If you have a new car with a big loan, you will probably want a policy that covers all the bases. But if the car is on the older side, consider scaling back on comprehensive coverage. You can also consider per-mile insurance if you don't drive as much as you used to. Savings can be considerable.
- Homeowners insurance. You and your mortgage company want full coverage of your home but there's no reason you can't shop around every few years. Call or go online and see what competing companies are paying for homes like yours. You may be surprised.
- Home warranties. These are really extended service contracts that cover repairs of major items like water heaters, appliances and the like. They may not save you money but they can even out maintenance expenses and spare you the budget disruption that can result when an air conditioner or refrigerator fails.
- Extended car warranties. Yes, many scammers claim to offer these products but there are also legitimate companies out there. Like home warranties, extended car warranties can help you deal with major items like engine or transmission repairs. It's something to consider if you have an older car that is no longer covered by the manufacturer's warranty.
Eat more healthily
Food is a big part of every family's budget and it can also be a big contributor to heart disease, obesity and other ailments of affluence. Surprisingly, a healthy diet can be more economical than living large. Consider this:
- Back to basics. Cheaper food is often better for you. Take oatmeal. A simple box of plain oatmeal costs less than $2, contains no sugar and no additives or preservatives. You can cook it in your rice cooker in no time. Add some fruit or protein powder and you're good to go.
- Buy in bulk. If you live near a Costco or similar warehouse store, stock up on basic items that are cheaper in bulk. But don't bulk up on the frozen salmon, sirloins or other expensive foods. They may be cheaper in bulk but they're still expensive.
- Learn to cook. Dining out became popular as two-wage-earner families became common. With remote work apparently here to stay, it's an excellent time to buy a cook book or two and start preparing your own meals. It's healthier, less expensive and can be fun once you get the hang of it.
- Nix the meal kits. They claim to eliminate waste but the stingy portions wipe out any chance of leftovers. And the packaging and transportation wipe out any supposed environmental benefits.
Manage your debt
It's easy to forget that credit is generally tied to inflation in one way or another. Credit cards often charge a certain number of points above the CPI. With the CPI rising 5.4 percent, that can mean a hefty boost in the cost of a new loan or – even worse – on rotating credit card balances.
It's time to:
- Review you credit card accounts. Rates vary from one card to another. Find a lower-interest card and, if possible, transfer some of your existing debt to the less expensive account. Some offer zero interest on transferred debt for an introductory period.
- Consider credit unions. As customer-owned non-profits, credit unions generally charge lower interest rates and many also offer free personal checking. They're also a good source of car loans and, sometimes, home mortgages.
- Avoid new debt for now. Some economists think the current inflation will fade away as COVID eventually wanes. Wait til next year to buy that new house, in other words.
- Sit tight on mortgages. This isn't the best time to refinance.
There are almost endless ways to save money by cutting back and reallocating. But don't forget the best way to get ahead of inflation.
Make more money
It seems pretty obvious that a good way to relieve a money deficit is to get more of the stuff. Some simple possibilities:
- Ask for a raise. If you're gainfully employed, make it even a little more gainful by hitting up your boss for a raise. With a nationwide shortage of able, willing workers, there's no better time to cash in on your sterling employee record.
- Get a better job. See above. Jobs are going begging. Get out there and grab one.
- Get another job. There's nothing wrong with having two jobs. It boosts your income and often leads to other opportunities.
- Shift your savings. Money that's sitting in a bank account is losing value every day. Everybody trashes the stock market but it is the best long-term way to boost your net worth. Not interested in money? Buy an ETF fund and forget about it. It will grow over time. Yes, there will be dips but there will also be recoveries.
There are countless ways to improve your money management skills. Visit your local library (yes, they still exist) and ask the librarian to recommend some books on running an efficient household.