It seems like you can’t turn on the news, open a news app or listen to a podcast without hearing about how much inflation continues to rise. In Canada, we haven’t seen inflation this high in 30 years!
But what is inflation?
Essentially, it’s the rise in prices and therefore the value of our money is not as high. Inflation rates can be caused by a number of things, currently through issues with supply chain, the rise in energy and gasoline prices and the invasion in the Ukraine. Although nobody can predict when things will cool off, it is expected that inflation won’t change much over the next year, so it’s time to think about how we can actually still get ahead while dealing with these high levels of inflation.
Below are 7 things we can do to try and combat inflation.
1. Re-evaluate Your Budget
When inflation is so high, it’s unrealistic to maintain the same budget, especially on things like groceries and gas. Ideally, it would be best to reduce your discretionary spending (vacations, entertainment, clothing) to adjust. However, if you are aggressively paying down debt or investing, you may want to slow down just for the short term to allow for a buffer in your day to day spending.
I, personally, received a raise this April and I typically like to maintain my budgets and increase my savings/investments proportionately; however, this year, I will be putting my salary increase towards my budget for day to day expenses like groceries.
2. Save on Groceries
This seems to be the area of spending that has been hit the hardest, or at least it seems like it considering how often we are buying groceries. I don’t know about you, but every time I go to “pick up a few things,” it’s at least $60-$100. My tips in this area are not earth shattering; however, realistic. If you can, buy staples in bulk. Meal prep can go a long way in saving money by not throwing out food waste. Another good way to save on groceries is by using a cashback credit card or by getting points you can use towards groceries (my favourite is the PC Optimum program).
3. Save on Gas
I’m sure you have all noticed a difference at the pumps. And there is no way to get around this. However, a few suggestions to save money on gasoline (without suggesting you go out and buy a Tesla) are stacking trips (make a list of the stops you need to go and plan your route accordingly), car pool when possible or take transit or link a bank account that saves at the pump (e.g. RBC clients can get 3 cents off per litre at Petro-Canada.
4. Reduce your "Wants"
If you don’t have the extra cash flow to increase your overall budget to account for the increase costs for groceries and gas, it may be necessary to evaluate what you actually need vs. what you want. Maybe for the short term, you may have to cut back on eating out, your entertainment budget or take less vacations or more budget friendly vacations. This is also a good opportunity to check in with your overall goals and values and ensure that your spending habits align with your long-term vision.
5. Postpone Large Expenses
Inflation is also impacting the purchase of large expenses such as vehicles and the housing market. It’s hard to know if the housing market will at all cool down, but with increasing interest rates, it looks like it may not continue to escalate as quickly. Now may be a good time to wait things out and see if things slow down over the next few years. I know that I’m in the market for a “new to me” vehicle soon and there is not a lot on the market right now, meaning that prices are really high. For me personally, I think it’s best to wait a year and see.
6. Invest in Yourself
One of the best ways to fight inflation is to increase your income. If you are not in a place to switch jobs, now might be a good time to increase your knowledge/skill set for the future. You can then use those additional skills to negotiate a higher income (with your current employer) or switch to a higher payer job (either internally or externally). You may not have the means to get a Master’s degree, but there are so many great courses (free and paid) offered virtually.
7. Continue to Invest for the Future
Although the stock market is a bit volatile at the moment, history typically repeats itself and the average stock market return is 10%. One of the best ways to combat rising inflation is to set yourself up for the future. Although prices are high, do your best to continue to contribute to your investment accounts. Some say it’s best to look for companies that raise their prices to adjust for inflation meaning steady revenues or ones with strong dividend paying stocks. I think the best approach is to maintain your long term strategy, continue to diversify and ensure that you have the correct level of risk based on your comfort level and time horizon. And to make sure that you aren’t paying high fees that can cut into your returns.
At the end of the day, we don’t know when inflation will decline, if at all, and we all just need to do the best we can with our current situation. Don’t beat yourself up if you need to slighly decrease your savings or investment to adjust for inflation in the short term. Just ensure when it steadies out, that you continue to ramp up those savings and investment and set yourself up for long term success.