What inflation is and how to handle it
What inflation is and how to handle it
For many of us, inflation is a word that belongs in the past and was just in Economy history books. Now, it is almost everywhere, and you probably already realized prices are changing on grocery store shelves around you.
But what exactly is inflation?
Simply put, inflation is the rise in prices of goods and services. It happens when the demand for those goods and services is higher than companies can provide them. If there's a scarcity of those items, they become more valuable and prices go up.
In other words, goods and services become more expensive, and your money becomes worthless.
However, all of it was kind of predictable. To fight the pandemic, central banks across the globe boosted their economies with low-interest rates and other measures to keep things running during lockdowns. The current inflation also reflects the huge difficulties in the global supply chain - again, a pandemic effect.
In the United States, the Consumer Price Index (CPI) measures the average change in prices over time for a basket of goods and services in urban areas. As of November, the CPI had increased 6.8% from the previous year - its largest increase in almost 40 years.
How to deal with inflation?
There is no magical solution for inflation, but a few simple tips could prevent you from making mistakes that may hurt your finances. Knowing your financial priorities and goals is one of the most important resources in those moments.
In times of inflation, lifestyle and expenses should be kept simple. It's crucial to not overspend on your credit card. Due to the upward inflation, we may soon see interest rates rise, which means your credit card interest will go up, too. The other side of rising interest rates is that your savings account will earn you more interest. If you use a savings account, make sure it has a high yield.
Don't stop investing for retirement, either. Maintaining your financial goals, diversifying your investments and avoiding debt now can save you time and money down the road.
Meanwhile, you might see your Social Security or Supplemental Security Income benefits increase because consumer prices are rising. The Social Security Administration announced an increase in benefits of 5.9 percent for 2022.
Additionally, you can use apps and search to find cheaper prices and special offers. Wait until supply issues are resolved and prices are lower before making unnecessary purchases.
We do not know how long inflation will last, but we can expect some price pressure in the months ahead. Prepare your finances, so you don't have any surprises in 2022.
