What is Inflation? Saving Money during Times of High Inflation

  • Saving Money, Financial Advice, Millennials
  • January 17, 2022
  • FCU Team

Understanding what inflation is and how it affects the economy is vital for knowing what to do as a consumer. Let’s define inflation and some strategies you can use to deal with it.

Inflation Defined

With the recent news that inflation has risen 7%, many Americans are concerned the money they have won’t be enough to cover rising prices. Let’s start at the beginning: what exactly is inflation?

Inflation is the increase in prices for goods and services. The 7% figure is calculated using something called the CPI, or the "consumer price index." The CPI is composed of goods and services commonly purchased by Americans, about 80,000 of them to be exact.

It’s important to note inflation isn’t something that comes along every once and a while. It occurs year after year, and a little inflation is not a sign to panic. In fact, you can actually see how the value of money has changed through inflation calculators. For example, the buying power of $1 in 1965 is equal to nearly $9 today!

The issue arises when inflation increases too much and too fast, as it can have an overwhelmingly negative effect on the economy.

What Does Inflation Affect?

Higher inflation equals heightened prices for consumers. You may have noticed a few already, such as the rising prices of fuel for your car. Another common increase is food costs, and your recent outings to the grocery store have likely had higher price tags than in early 2021. These increases in consumer prices can consume savings and throw established budgets into disarray.

Inflation can also affect interest rates. A way the Federal Reserve can try to curb inflation is through the raising of interest rates. This has the double effect of lowering inflation and slowing the economy down.

What to Do if Inflation is Rising

Find Ways to Save Money on Expenses

Our first recommendation is to try to save money where you can. Become more savvy about deals, and hunt for offers and coupons that can soften the blow of higher prices. In order to save money on gas, see if you can use public transportation or form a carpool with nearby friends or coworkers if possible. If you were aiming for a big purchase soon, it may be smart to delay for a few months if you’re able.

Budgeting

You may also want to restructure your budget or create one in the first place. This will help you discover if you have areas in your spending that can be curbed without much effort. These include eliminating unused memberships, streaming services and more.

Examine Your Savings and Consider Investing

It might sound like an oxymoron, but you generally don’t want to have too much cash saved. Even in times of normal levels of inflation, cash loses value. For example, let’s say you have $10,000 in a savings account. If you left that money in that account untouched for ten years, the purchasing power of the $10,000 would decrease. That’s not to say you shouldn’t have any savings in the first place, just that you should be careful of having too much. We will always maintain that having an emergency savings fund is a must!

In any case, this is why many economists and financial advisors recommend diversifying your portfolio. You can do this by looking at high-yield savings accounts and investment options like stocks, CDs and IRAs. It can be intimidating to step into the world of investments. If you need a place to start, Florida Credit Union offers investment services to members.

We’re Here to Help

From financial education to personal loans, Florida Credit Union is here to help members. Don’t hesitate to visit a branch or contact us.

 

Florida Credit Union is a full-service financial institution. Founded in 1954 as the Alachua County Teachers’ Credit Union, FCU now services over 130,000 members in 48 counties throughout North and Central Florida. For more information on the services we provide, visit FLCU.org or call us at 1-800-284-1144.

 

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