How will rising inflation affect me?
Inflation is a term we hear quite a bit, but we may not fully understand what it means for us, or how it will affect our daily lives. But, as with any new idea you want to understand better, knowing is half the battle—and we have some info that can help you with the rest of the fight.
What is inflation?
Simply put, inflation just means you will pay more for the same goods and services. Your favorite brand of soda might go up a few cents; going to the movies will likely take a few more bucks than you’re used to. If you’ve ever heard Grandma tell you how cheap a gallon of milk used to be, you are familiar with inflation
Why does it happen?
Inflation seems to be the result of a few different phenomena:
The “Demand-Pull effect” – the demand for a product or service is higher than the current economy was prepared to meet. Prices rise as more and more consumers seek out certain items (see: toilet paper in 2020), often resulting in prices above the market value.
The “Cost-Push effect” – this effect works in the opposite direction—it’s the cost of the production process or service that rises, which in turn is passed onto consumers. Keeping up with demand while low on supplies or with increased price of supplies means the consumer pays more.
Built-in Inflation – when prices rise, those in the workforce need to increase their wages to keep up with the cost of living. It’s a cycle of inflation: prices rise, wages rise, and prices rise again.
How does it affect me?
Inflation affects everyone—some more than others. Here are some actions you can take if inflation affects you:
Rebuild your budget
We know you have a budget! And we also know that you know that budgets need to be reviewed and updated as life changes. This includes the changes that inflation brings. If you are currently dependent on a medication that is going to cost more, you need to factor that into your budget. If your grocery bill will go up, you need to factor that into your budget. You get the picture.
Take stock of your finances
If you’re worried about inflation and its effects, this is a great time to speak with a financial advisor who can help you determine the state of your finances and ways you can continue to budget and save. Getting an objective, professional opinion can go a long way in identifying potential danger areas and the places where you can grow your wallet.
Keep an eye on the job market
We’ve talked about how inflation means many earn higher wages, but it can also mean fewer jobs. If a company hopes to maintain their own budget while giving raises to some of their employees, there may be fewer jobs available. You don’t need to rush out and find a new job today; just keep your finger on the pulse of your own job while looking at options for others.
Know your home’s value
You may not be planning to move ever again, but it’s always a good idea to know the value of your home. This is a simple task—you can sign up for websites like Zillow that will give you an estimate of your home worth. Check out the value occasionally to keep in the back of your mind—you never know when that info could be useful, especially in the current housing market.
Check out your retirement plan
You or your partner are likely paying into a retirement plan already. While this is a great idea, you will want to take a look at the plan and see how inflation can affect your ability to save for the future.
If retirement is a long way off, you have a little more flexibility when it comes to making any changes. But if you’re looking to get out of the workforce in the next few years, review your retirement account and make necessary changes to ensure your financial security.
Inflation is a fact of life—but you don’t have to be afraid of it. Some of these changes may seem overwhelming, but you’ve already won half the battle with your new knowledge. Make a goal this week to sit down, review your budget, and determine your best next steps for keeping your financial security stable.