5 Ways to Cope with Inflation
In 2022, inflation in the United States climbed to a 40-year high. The five tips below may help you manage the impact of those higher costs on your budget.
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In 2022, inflation in the United States climbed to a 40-year high. According to the U.S. Bureau of Labor Statistics, the term inflation describes the overall trend of price increases (on goods and services) within an economy.
U.S. Consumers are feeling the impact of higher prices in many areas—from grocery and gas transactions to home and auto purchases. If you're trying to figure out how to manage increased costs in your own budget, the five tips below may provide you some inspiration.
1. Update your budget.
At its core, a budget is a plan for how you'll spend the money you earn. Yet many people fail to realize that a budget is like a living, breathing document. You need to tweak and update your monthly financial plan on a regular basis for it to do its job.
With inflation, you're likely to see an increase in several different spending categories. And when spending increases occur, you'll need to find a way to manage them.
You might have another area of your budget where you could spend less to accommodate for the extra money you're spending on groceries, gas, or elsewhere. For example, you could consider shopping for better priced groceries, using coupons, driving less, or finding other ways to combat the impact of higher prices.
2. Negotiate your bills or switch providers.
Cutting expenses in one area could help you free up some extra cash to use in another spending category. And one great way to cut expenses is to ask service providers if they're willing to accept less money by negotiating your bill.
Insurance companies, mobile phone providers, and even utility companies might be open to reducing your monthly bill if you call and make the request. If you've found a competitor that offers a better rate for a similar service, be sure to mention that detail on your phone call.
In some cases, switching to a better-priced provider might make more sense. And you could consider dropping non-essential services all together to reduce your overall monthly expenses.
3. Pay down debt.
High-interest debt can put a strain on your budget in the best of times. But when inflation has your finances stretched thinner than usual, eliminating expensive debt becomes even more important than usual.
It may seem counterintuitive to increase your debt payments at the same time your budget is stretched by inflation. But if you can make some temporary sacrifices to pay down high-cost debt, it could pay off in the long run.
Eliminating credit card debt in particular could help you in multiple ways. Owing less credit card debt could free up extra money in your budget. Instead of putting your hard-earned dollars toward interest fees, you could apply those funds to other areas that could improve your life (i.e., retirement savings, vacation savings, a new home, etc.). Plus, paying down credit card debt has the potential to impact your FICO® Score in a positive way if you reduce your credit utilization ratio.
4. Manage rent increases.
Households across the country are facing rent increases. According to Redfin, between March 2021 and March 2022, rents rose by 17% to an average of $1,940 per month (a record high).
A rent hike can be stressful, especially if the new rate won't fit into your budget. If you find yourself in this situation, there are a few options to consider.
First, you can research rent-related regulation in your area. The National Mutlifamily Housing Council has a list of rent control laws by state. And if there are no laws in your area to protect you from an unaffordable rent increase, you could also see if you qualify for any rental assistance programs.
Another approach to try could be attempting to negotiate with your landlord. Offering to sign a longer lease, prepay a portion of your lease, give up a parking spot, or even do minor repairs or upgrades (if you're handy) might make your offer more attractive.
If all else fails, you might consider making a move. And if you work a remote job that doesn't require a commute, relocating to a lower cost of living area could work in your advantage if that's something you're willing to consider.
5. Increase your income.
Another possible way to combat the impact that inflation has on your finances is to increase your income. There are a few strategies that might help you accomplish this goal, and the first is asking for a raise.
One tip for negotiating a higher salary is to do some research in advance of your request. Then, when you approach your boss to ask for a pay bump, you can point out what the current market rate is for a similar position (especially if you're receiving less compensation than average). You can also consider mentioning how inflation is impacting your living expenses.
If your employer isn't willing to increase your salary, you could entertain the possibility of looking for a higher-paying job elsewhere. There is a record number of job openings in 2022, and many businesses are willing to pay a high premium to attract new employees.
Finally, if you like your current job and don't wish to leave, you might look into the possibility of picking up a side hustle. The right side gig might help you add extra income to your budget, pay down debt, or accomplish other financial goals.
Inflation and rising costs can make it difficult for many households to meet their financial obligations. Yet depending on your situation, the five strategies above could be helpful. Having the right plan to manage the impact of inflation may help you avoid potential problems, and it might reduce your financial stress level at the same time.