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How Inflation Affects Your Daily Expenses in 6 Startling Ways

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Inflation Affects Your Daily Expenses-min

In 1974, President Gerald Ford declared inflation as Public Enemy No. 1 in the country. It’s an eye-catching buzzword, but inflation is not imaginary. Its ability to raise prices and upend multiple financial goals can be more devastating than any supervillain or giant monster. By April 2022, consumer prices nationwide rose 8.3%, considered the highest jump in over 30 years.

Surprisingly, studies show that despite inflation’s widespread reach to all economic sectors, many people don’t fully understand it. They might notice that groceries or fuel prices are more expensive, but they might not know why. As a former real estate agent, I know just how powerful inflation can be. Here’s what you need to know about the price hike and how it affects your day-to-day living expenses.

What Inflation Is

In simple terms, inflation is a rise in price value for everything in the market. Everything you own is growing in cash value. There are three reasons why inflation occurs.

Demand Increase

The marketplace consists of two things: supply and demand. It’s a game of need versus want, with a price tag. For example, stores provide toothbrushes. Inflation can occur when the demand for one item grows exponentially. The more people need something, the more lucrative it is for earning.

For example, the pandemic made it hard for people to eat at a restaurant. To compensate, they turned to buy takeout from all their favorite brands and branches. This rise in demand soon made take-out meals more expensive. It’s also why the price of canned food and toiletries increased. People took as much stuff as possible to keep from leaving the house. This rise in demand means that the stocks of these items became more valuable, which led to the extra numbers in their price tag.

Supply Issues

Aside from an ever-growing rise in demand, inflation occurs when there aren’t enough supplies to satisfy everyone. For example, a town of 500 people suffers from a toilet paper shortage. Perhaps the factory is low on raw materials or delayed deliveries. In both cases, the lack of paper means much more demand than the available stock. To compensate, the price of each roll needs to rise, or else the stores risk running out of goods. So the next time you’re looking at your groceries and wondering why the vegetables cost way more, it might be that there’s not enough in stock for the day.

Fiscal Policy

Sometimes, the reason that inflation happens is to boost or encourage more spending. Sounds ironic, doesn’t it? However, inflation isn’t always a negative thing. Fiscal policies are an excellent example of raising prices effectively. These government policies adjust taxes and consumer prices to allow more cash flow. Such mandates can happen when the currency rises in value, or more bills circulate to the public. The problem is that fiscal policies aim for a specific inflation rate to boost prices without discouraging buyers. For example, a country might aim for a 2% rise in a year. If they go too far, such as our 8.3%, spending and adjusting our money becomes a significant concern.

Six Ways Inflation Affects Your Finances

As you can see, inflation can happen anytime due to supply-demand concerns or government policy. Regardless, the rise in consumer prices will affect your daily finances in ways you might not expect. Here are six shocking examples of how inflation hits your financial plans and goals.

1. Rising Prices for Gas and Other Products

Inflation’s most apparent effect is a sudden rise in all product prices. You might notice that your gas station now sells each liter by triple digits. Perhaps your local diner’s menu added more numbers to the price of each meal. In short, inflation raises the price of your everyday goods. Things that will cost more include your fuel, your electricity bill, your weekly groceries, and public transport. If you don’t plan accordingly, you might overspend faster than you initially thought.

2. Rising Prices for Housing and Other Services

Aside from goods, services will also adjust their prices to meet the value increase. Places like the laundromat and the local mall will likely raise their deals to ensure quality service. Unfortunately, you’ll need to set aside more cash for whatever you pay. Whether a haircut or an overseas delivery, you’ll be asked to spend more than you did before. For housing, it also means that your rent or mortgage price may climb accordingly. On a positive note, the cost of your property could help you plan out future deals or sales with interested buyers.

3. Wages Have Less Value

A hike in consumer prices will lead to less value in the dollar. That means those working and getting paid regularly will have less spending power once their paycheck comes in. If you’re not careful, you could be baffled and feel underpaid when your salary comes. To prepare ahead, discuss with your boss how your earnings will be affected by the inflation rate. You can then examine your financial plan to adapt to your salary’s current value.

4. Budget Changes

Any changes in your expenses will always have an impact on your budget. Inflation can force people to use emergency funds or savings to keep their lifestyles afloat. For example, you might enjoy going out of town and driving your car down the highway. With the rise of gasoline prices, doing so will cost more and require a heftier sum to cover it. You might not get to enjoy your regular trip down Route 66 unless you shift more cash to your travel expenses.

5. Delayed Financial Goals

When your money has less spending power, it might delay your plans. Investment options like a new house or retirement money require more time to afford. You might also have to cancel any upcoming vacations or purchases.

6. Confidence and Discretion Concerns

Any change in your financial plans might make you doubt yourself and your cost of living. You might feel upset and stressed out because your usual routine requires more planning and funding to pull off. It might also make you cautious about spending because you don’t know when the prices will fall back. It’s important to remember that inflation may be challenging, but it isn’t the end of the world. You can still find ways to build your budget and savings without it costing an arm and a leg.

How to Protect Yourself From Inflation

While inflation can be tricky, there are ways you can keep your wallet out of danger. Here are some bona fide tricks to protect your money during inflation.

Review All Expenses

First, always check and re-evaluate your current spending habits. A good rule of thumb is to separate your expenses into “important” and “unimportant” categories. Important purchases are all the financial needs in your life. Examples of these expenses include food, rent, and water bills. Unimportant expenses are purchases for anything you can live without. Consider things like new shoes, snacks, and housing renovations. By dividing these things, you can examine which to retain and which to cut off. For instance, you might stop subscribing to Netflix for a month. The extra cash could be more useful as savings or for spending on any living expenses you need to cover.

Prioritizing Goals

You might have existing short-term goals you want to fulfill, like paying off loans or covering mortgage fees. If you achieve them during inflation, focus on the one with the highest priority. I recommend reviewing your goals based on urgency and importance. Once you outline which ones need immediate attention, that’s when you can start to plan your budget accordingly. For example, you might have an outstanding bill on your rent. Covering it takes more priority and attention, including vacation plans or loan options.

Secure Emergency Funds

For peace of mind, I suggest building and securing an emergency fund during inflation. This type of budget, also known as “rainy day cash,” can help pay off any unplanned emergencies or expensive purchases. For example, if your house gets damaged by a storm, rainy day cash can cover the repairs. 

An ideal emergency fund should be able to cover at least three months’ worth of your expenses.

Talk to a Financial Expert

Saving your money sometimes requires the right advice. If you’re planning on making new investments or exploring loans during inflation, always talk with a financial analyst or expert. These people can examine your current budget and help you understand what to do and avoid. For example, they might notice existing loans you still need to cover. They could also offer insight into housing market deals and projected inflation rates. Listening to their advice is an excellent way to keep your money safe and plan your budget accordingly.

In Summary

Inflation hits everyone in ways they don’t expect or realize. The price hike can make daily expenses costly. For example, fuel or buying groceries might go up by $20 or $30 a week. The best way to protect your money is by planning your expenses ahead of time. By keeping track of what payments are necessary, you can cut out any unneeded costs. You can also set up emergency funds and prioritize any financial goals, like investment plans, to help you focus your money. Doing so can help you ride out the storm of inflation. More importantly, it can help you reassess your finances to avoid running out of cash.

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