Creating a Budget to Combat InflationFeb 28, 2022 10:06PM ● By Carol Ann Aldridge
Inflation is best defined by the increase of prices for goods and services in an economy while also reducing a person’s buying power. Meaning that one’s dollar will not go as far tomorrow as it would today. Inflation is a normal part of our economy, and four times per year the Federal Open Market Committee (FOMC) makes its predictions regarding goods, services and employment. It is with this prediction, the FOMC applies monetary policy to maintain an acceptable rate of inflation, with the goal of keeping the economy stable. If inflation is too high or too low, it slows the growth of the economy and can lead to a recession (think 2007 to 2009).
There are two gauges economists use to measure inflation as well as deflation in our country. We have the Consumer Price Index, which examines the cost of things consumers buy out of pocket, and the Personal Expenditures Index, which examines the cost of things consumers pay indirectly, such as health care. We started to see an increase in inflation back in 2020 when the COVID-19 pandemic first began, and since then there has been a steady rise in the increase of prices because the demand for certain products has surpassed the supply. This, unfortunately, affects the less affluent families, that are living paycheck to paycheck, the most. When inflation is high, the affluent can cut back on luxuries, such as dining out, but the less affluent need to spend more of their budget on necessities.
So, how do we combat inflation until prices stabilize? The first step is creating a budget. By creating a budget, it allows us to see the areas that need to be adjusted so we can focus on our needs. Something to also consider are additional expenses we can live without, for example TV streaming services. Yes, they are nice to have, but for the time being it may be beneficial to reduce these services to one or two. By reducing this expense, we help our budget stretch further without affecting our quality of life.
Shortages can also be quite common, and we’ve already seen the impact inflation has had on auto sales as well as general household products, so it’s imperative that we prepare for future increases. We can do this by purchasing durable products that require less maintenance and don’t require being replaced often. Though the initial cost may be higher, we will reduce our overall spending over the period of ownership.
So, we need to shop wisely, make a budget and get creative! We can look for coupons, shop store brand versus name brand for everyday items, and make the trip to the grocery store an adventure. You’d be surprised what you can do with your budget when you put your mind to it.
Carol Ann Aldridge is a certified lending counselor for Alive Credit Union. For more information about Alive Credit Union, call 904-296-1292 or visit Alivecu.coop.