Inflation means that the purchasing power has decreased. This necessitates putting more money to buy the same services and goods now than was required in the past.
Inflation thus makes budgeting particularly difficult for individuals living on fixed incomes or trying to save for retirement.
Understand inflation’s effect on your money long-term
Money you won’t need to have access to over the next three to five years may serve you better in an investment account instead of a savings account.
Many investments can return more than the 0.50% interest rates many banks offer. It is common to see interests rates lower than even that paltry return.
That’s lower than the historical inflation rate — by far!
An investment in a stock or bond fund can give you more, but make sure it’s in an easily accessible account.
Money you put in a taxable account and contributions to a post-tax Roth IRA can be withdrawn, for instance, but money in an IRA or 401(k) will imply penalties and taxes if you withdraw early.
Be creative about where and what you buy
When assessing your budget, changing how you acquire things can be all the adjustments needed when making purchases.
Instead of purchasing new items, Facebook Marketplace, Craigslist, second-hand shops, discount stores, and yard sales can offer plenty of bargains that are easier on the bottom line than paying full retail.
Many online groups provide items for free or exchange, known as freecycling. Warehouse stores can also offer savings worth more than the membership cost.
Reassess your budget
When reassessing your budget, many experts recommend a 50/30/20 budget, where 50% of after-tax dollars are spent on necessities, 30% will be spent on wants, leaving 20% on savings and debt repayment.
Periodic budget reevaluations can help you ensure that your savings and retirement accounts can withstand the ups and downs that are inevitable.
