Inflation woes
Have prices got you down? For many of us in America, we are living through the first high inflation period in our (adult) lifetimes. It can be a shock. As a history lesson, the 1970s brought us a stagnant economy, filled with oil shortages and threats of war (and the Cold Way) along with high inflation. The government fought inflation in the early 1980s with severely high-interest rates, to encourage saving and discourage fast consumption. If you are younger, you have probably only ever lived in times of very low-interest rates and low to moderate inflation, followed by booms and busts of the US and World economy.
Lessons: don’t overreact to the shock of a certain good. In this case, gas. Yes, it stinks to pay more at the pump, but even a $100-200 increase per month in gas does not justify spending tens of thousands of dollars for possible fuel savings. Now is a bad time to buy a car if you don’t need one—the COVID supply chain shortage has hit many brands so hard that they can’t supply dealers with new cars. Used cars gained value last year even as they aged and wore down. That’s unheard of!
Postpone car purchases: If it is possible, postpone buying items that are in a generationally-challenged supply. We should work from the assumption that at some point the car market will return to some sort of normalcy, with normal dealer stocks available.
Food and dining out: For many of us, food is a major expense. Not just groceries, but eating out and convenience foods. You are paying someone to cook or prepare the food for you, so you are paying for service worker inflation as well as the cost of the raw foods. (In addition, the restaurant may be facing a squeeze with higher utility and staffing costs). Obviously, you can eat out less often or cut back on what you order. If one favorite restaurant is charging a surcharge or has jumped prices too fast, perhaps avoid that place.
Utilities: Depending on where you live, you may be able to shop around for utilities like electricity or gas; I would suggest locking in today’s prices as long as possible. Most of us cannot shop around. Learn to conserve energy, either by using a smart thermostat to control HVAC costs or by self-discipline. Can you water the lawn less often?
Housing: If you own a home with a fixed-rate mortgage, you should have relatively stable mortgage costs. If you took on a variable rate loan, like some HELOCs, prepare for increasing rates and higher payments. Is there any way to pay off that HELOC quicker as part of your debt paydown?
Travel: If you have travel planned, you are going to need to fine-tune your cost-cutting. Rental car rates are up; airfare is up; gas it up; hotel rates are up. Perhaps cut some of your dining out next trip? Shop around on all of the popular travel sites before booking.
iBonds: Currently, iBonds are paying 7.12% (as of April 2022, subject to six-month adjustment). Your money is tied up at least one year, with penalties if you withdraw in the first five years. However, that is an unbeatable savings rate. If you have too much cash sitting around, and you don’t want to invest it (in the stock market, etc.) but don’t need it immediately, consider buying some iBonds.
Crypto: The digital currencies have promised us they are not “fiat” currencies like the dollar or euro, but they are far more volatile. Putting a few bucks into Crypto might be an inflation hedge. At a minimum, pledge to learn more about blockchain technology this year.
How has the inflation hurt you? What advice do you have for your fellow Unstuck readers?
