Inflation, which represents a decrease in the purchasing power of money and manifests itself as a rise in all prices, can seem pretty straightforward. However, sometimes it’s more complicated than that. That’s because inflation has a snowball effect that impacts everyone but in particular the most vulnerable groups, such as renters.
Unlike a homeowner, who has already paid off his mortgage or has a fixed-rate mortgage, which means that the monthly payment remains the same for the life of the loan, a renter might end up paying a higher rental rate. Why? Simply put, as the cost of living increases, most landlords need to raise rents in order to keep up with the cost of property maintenance, improvements, tax increases, and different community amenities and services, like the ones we offer at Sugarloaf Luxury Apartments.
Since inflation can affect your lifestyle, which is based on your income and expenses, we have gathered below 5 expert tips on how to cope with rising prices and overcome inflation.
Tip #1: Adjust Your Budget for Inflation
If you already have a budget to keep costs under control, you might need to adjust it for rising prices. To achieve this, you should track your daily expenses, cut back on activities or things that aren’t absolutely necessary, such as eating out and subscriptions you’re not using, and look for less expensive alternatives, especially for non-essentials, such as clothes and appliances. By building a smarter strategy for controlling your spending, you’ll be able to reduce seemingly insignificant costs and minimize the impact of rising prices on your income.
Tip #2: Pay off Variable-Rate and High-Interest Debt
As you know already, cutting unnecessary expenses is a great way to save money during inflation. An unnecessary expense you might overlook is any variable-rate or high-interest loan you have. To begin with, variable-rate loans have interest rates that change periodically according to different economic factors. This basically means that your monthly mortgage payment will change as well. Since raising interest rates is a policy response to combating rising inflation, paying off a variable-rate loan before inflation rises, even more, could help you save a lot of money in the long run. Additionally, any loan with a high-interest rate can be a huge burden on your overall budget. Paying off a high-interest loan more quickly will allow you to free yourself sooner from that burden and also save on the total interest you’d otherwise need to pay. If you cannot pay off your loans early, you might want to consider fixed-rate refinance loan alternatives while interest rates are still relatively affordable.
Tip #3: Transfer Your Savings to a Higher-Yield Savings Account
Another way to stand up against inflation is to put your savings in a higher-yield savings account. Although a high-yield account might not totally beat the rate of inflation, it will get you more money than what you’d earn if you continue to keep your savings in your current account. That’s because the best savings accounts currently offer an annual percentage yield (APY) of around 0.40%, while the national average interest rate on standard accounts is 0.06%. Setting up a high-yield savings account is relatively straightforward, but there are a few things you should consider, such as the minimum initial deposit, monthly fee, excess withdrawal fee, inactivity fee, and how the bank or financial institution actually applies the APY, in order to decide whether switching accounts is worth the effort. As an example, a bank may apply the same APY across all balances, while others may tier their APYs according to different balance caps.
Tip #4: Find a Way to Save More Money
One of the most effective ways to save more money during inflation is automatic savings. Setting up automatic savings, which allow you to put extra cash out of sight and out of mind, is a great way to start saving small amounts that will add up over time. For instance, $75 a month accumulates to $900 a year and $4,500 after 5 years. To save even more, you could also deposit any bonuses and tax refunds into the same savings account.
Tip #5: Shop Around
Needless to say, costs are on the rise everywhere during inflation. But you can still find better prices if you shop around. Because food is the largest expense after housing and transportation, one way you can cut your expenses is by purchasing groceries online. Not only will you find better prices, but shopping online can also prevent you from making any impulse purchases. Another great idea is to check out the grocery stores that offer fuel discounts and gas rewards points. Getting a discount on gasoline will reduce your transportation costs, which could have a significant positive impact on your budget.
When dealing with rising prices during inflation, make sure that you keep your financial priorities in mind. Instead of taking out new loans and living on credit cards, try to save more and invest your money wisely. While you cannot control economic conditions, you can definitely control your spending and saving habits.