Managing Your Household Inflation

Tim Obendorf |

While the government and Fed are trying to manage inflation for the overall economy, each of our households is trying to manage inflation in our personal economy. The average consumer has seen prices increase 8.6% in the past year, but your personal inflation rate may be higher or lower based on your mix of spending.

Back in the 1970’s, families responded to inflation by trading in their car for a more fuel efficient model, stretching their groceries by using products like Hamburger Helper, adding more insulation in their attic and  growing their own garden. You might not want to eat Hamburger Helper, but you might want to think about how to tackle inflation in your current situation. Here are a few steps to help you get started

  1. Understand how you spend your money. If you already have a budget, you are more than half-way there. If not, many banks have online tools to help you track your spending. 

  2. Categorize fixed versus variable costs. In the short run you may be locked into your housing cost. That may be good news when housing prices are increasing. On the other hand, if you rent, you might want to talk to your landlord about locking in your rent for a longer period of time.

  3. Review the big spending categories for opportunities. While clipping coupons may save you a few dollars at the grocery store, you probably will save more money by renegotiating your car insurance or restructuring your medical insurance to take advantage of a Health Savings Account.

  4. Be extra diligent when contemplating big lifestyle changes. The increase in gas prices pales in comparison to the increase in maintenance and utilities that you will incur if you move to a larger home.

  5. Recognize that inflation may be with us for longer than you thought. If that is the case, you may want to start planning for some longer-term cost management strategies. For instance, if you are leasing a car, save up enough money to purchase the car at the end of the lease. The buyout price was set at the beginning of the lease term and will represent a big discount compared to the current used car market.

  6. Don’t forget about taxes. Many families pay more money to the IRS than they need to. Review tax planning strategies with your tax or financial advisor to make sure you maximize opportunities like charitable deductions, Roth conversions, and Health Savings Accounts, among other tax strategies.

  7. Look for ways to benefit from inflation. If you locked in your mortgage at a low rate in the past few years, inflation is actually helping you reduce your debt.  That might be incentive to stay in your home and take advantage of the low mortgage rate for longer than you might have otherwise.

  8. Ask for a pay raise. If you are still in your working years, now is the time to ask for a pay raise. Your boss probably expects you to ask and is worried that you will move to another company.

  9. Spend money on things that make you happy. Sometimes it’s not the amount of money you spend, but the way you spend your money that matters. Research has shown that experiences generally bring more happiness than things. Whether or not that’s the case for you, make sure you know what makes you happy and redirect your money toward those things.