Tips to overcome inflation and interest rate hikes—especially when cash is tight
You know how when you go to the beach, sand just inevitably finds its way into anything and everything? There’s no stopping it, whatsoever. You know it’s going to happen, and no matter what lengths you go to try and avoid it, the outcome is the same: sand everywhere.
Inflation is kind of like sand. Okay, let us explain. Inflation is a broad, macroeconomic force that finds its way into every crevice of the economy, and inevitably gets passed down, around, and all over until those price increases reach the end consumer.
It’s a natural occurrence, because in the process of every individual trying to mitigate the impacts inflation has on their own finances, (things like profit margins, budget, etc.) we end up just passing it off to others. The implications eventually come back on us in the form of higher prices.
So, how can we even fight inflation?
When it comes to large scale things like inflation, we can do little to nothing to change it on our own. But, what we can do is adapt. This certainly isn’t meant to undermine the very real impacts inflation can have on our finances, or assume that adapting will solve all our money problems though.
The reality is that we find ourselves in the midst of a transitional period of sorts in the economy. As a result of that, there’s a lot of us on the fringes who are struggling to get by. And inflation just makes it even harder.
Between this, global conflict, the increasing cost of just living coupled with more expensive debt, and a jobs economy undergoing a major shift, there’s a lot on everyone’s plate. But, luckily, sometimes "adapting to change" can mean doing less—instead of more.
Fighting inflation: doing less
Adaptation doesn’t always involve actively doing things though, and it can sometimes actually mean the opposite: doing less.
Doing less: Everything costs money, and so the more we do, the more we inevitably spend. Simply “doing less” during periods of high inflation, or at least before wages catch up, can be boring, and even hard for some. But it can pay in dividends—like taking pressure off your budget.
Consuming less: Not even just doing less, but buying less, too. We often get used to the luxury of excess—getting those things we want, but maybe don’t need—and the impact on our spending being negligible. With the cost of everything rising (even cereal is up almost 12%, as of June 2022!), the implications are exponentially increased and more detrimental to your overall financial health.
Laying low: The overarching takeaway is this: laying low financially for the time-being can potentially reap great benefits for your finances in the long-term. And, it'll be worth the hard sacrifices and spending adjustments we’re making in the meantime.
Fighting inflation: doing more
Plan for inflation: If you already have a budget, great, you’re ahead of the curve. However, you need to adjust your budget from time to time, and now is one of those times where it really needs to happen.
Improving your career: If you have greater aspirations than where you currently stand, or just feel that your earning potential is much higher, now would be an ideal time to further sharpen the skills in your tool belt. Demand for workers is higher than ever, and shortages abound in a number of fields—meaning the labor market is ripe with opportunity for new and improved specialists across the board. Not to mention, that pay increase will definitely soften inflation’s blow.
Build a thicker emergency fund: If you don’t yet have a fully funded emergency fund of 3-6 months of expenses, that should be your first priority, because emergencies just got noticeably more expensive. After reaching this point, it might be wise to build out your savings even further to whatever point makes you feel safest. Because, yeah, those “emergencies” are costing a lot more than they used to. Additionally, be careful about when you dip into that reserve cash, too—i.e., make sure you can’t cover it with your regular income, first.
Pay off more debt: Although it might sound a little counterintuitive, paying off debt is actually a surefire return on your money. As opposed to losing X% on interest, you now recoup that amount to the extent that you paid down the balance sooner than expected. Why is now a good time to get rid of your debt? Well, in addition to everything else getting more expensive, the cost of debt (interest rates) are also rising too, meaning debt is also more expensive than it was before, and therefore weighs more and more on your expenses.
Bringing it all together
Ultimately, it’s about a combination of both doing less, and doing more. Go figure! Doing less or more on its own probably won’t be enough to offset inflation’s impact entirely, but by combining a couple strategies from both departments, there's a solid bet to fare better during these uber-expensive times.
Of course, you’re smart, so you might’ve already deduced that on your own. Actually, statistics show that as long as you’ve got your financial plan in place—and, of course, consistently checking off your to-do list and logging your 3 minutes per week in the Pocketnest app—the odds of you being financially healthy are already 10x greater than everyone else. Just kidding. Well, kind of, not really. 🤪 Keep at it, friend!