There is so much happening in our world these days. For the past several years, we have seen so many huge events, movements, and crises take place. To say the least, these changes have been affecting everyone in a vast number of ways.
With the COVID-19 pandemic, the war in Ukraine, and many other factors, inflation has been a very hot topic and a major concern for people around the world. Maybe you have a rough idea of what the term “inflation” means, but we’re here to break it down for you and what it entails. We’d also like to provide you with tips on how to personally manage inflation and how to protect your business from inflation.
What is Inflation?
It seems that wherever you go, prices have gone through the roof. For instance, the cost of essential foods like eggs and meat has increased by over 11% between December 2020 to December 2021. The prices of many other goods such as motor fuel, used cars and trucks, and furniture has been on a steady incline for the past one to two years as well.
That is a prime example of inflation at play in our country. In a nutshell, the word inflation refers to the steady rate of rising prices of goods and services over a period of time in an economy. Inflation can affect the economy in both bad and good ways. It erodes purchasing power or the quantity of which something can be purchased with money.
Inflation has also led to mass shortages. Due to a prospective continuation of this financial crisis, thousands of Americans have taken to stocking up on staples such as:
- Canned vegetables and fruits like tomatoes
- Cooking oils (i.e. canola or olive oils)
- Baking goods (i.e. sugar, flour, yeast, etc.)
- Applesauce
It’s not only their goal but a collective of our nation’s people to beat inflation.
What Causes Inflation?
There are three main causes of inflation. They are:
- Demand-pull inflation
- Cost-push inflation
- Built-in inflation
Demand-pull inflation
Demand-pull inflation refers to where there are not enough products or services being produced to keep up with the demand, causing their prices to rise.
Cost-push inflation
This type of inflation occurs when there is an overall price increase due to increases in the cost of wages and raw materials.
Built-in inflation
This type is also known as the “wage-price spiral.” It occurs when workers demand higher wages to keep up with climbing living costs.
But regardless of the type of inflation that’s taking place, it makes a direct impact on people’s well-being and livelihood. Because so many families and businesses have already taken a hit from the rising costs, it’s important to act wisely when dealing with inflation. So we’d like to present a couple of strategies for inflation.
How to Deal with Inflation
For You Personally:
Revisit Your Finances
In these times, it would be wise to review different areas of your finances. You should definitely look through your checking account, investment portfolio, savings accounts, and your financial planning and keep a watchful eye.
A good rule of thumb is to review the balance in your checking account every few days since this is likely the account you use to pay your bills and make regular transactions. We recommend that you check your savings accounts at least once a week. With inflation, there’s a chance you could see higher interest rates (meaning more money in your pocket) in the end!
It’s a common practice among investors to review their portfolio every few months, or on a quarterly basis. Markets can especially be volatile and unpredictable. This can help you see the ebb and flow of markets over time and balance your account.
Reduce Spending
There are multiple ways you can reduce your spending. First, you should take note of your transactions each month to understand the amount of money regularly coming out.
We recommend that you pinpoint your essential expenses and unnecessary expenses. We talk about how you can reduce spending and other tips here. While in some cases it may be easier said than done, we say try to eliminate any unnecessary expenses. These may include subscription boxes, extra streaming services, or take-out from restaurants. Looking for more cost-efficient alternatives or buying bulk amounts of items you regularly buy can tremendously help too. Take advantage of coupons and services like Honey which can find the best discounts available online.
Using less energy is a crucial step to take right now, as well. Simple ways to do that include turning the lights or water faucets off when not they’re not actively being used. Many folks program their thermostats to regulate the temperatures and cost of cooling/heating their home. An extra step you could take is to use appliances with good energy ratings or install renewable energy properties. A nice perk to installing this kind of property in your home (or business) is that you could potentially get a tax credit for them.
Budget or Strategize
You’ll want to create a realistic budget that you can stick to while prices are sky-high. You should regularly add up the total of your monthly expenses and compare the sum to how much you have saved. Factor in any debts you’re trying to pay down and give yourself a nice cushion in case of emergencies.
Speaking of which, now is the time to focus on replenishing your emergency funds. It’s important to have at least three to six months’ worth of expenses tucked away just in case. Life is unpredictable, so it’s good to be prepared. You should put your funds in a savings account with competitive rates, so your money can grow more in time. The same goes for regular savings funds. If you’re able, look into setting up regular automatic deposits from checking to savings. Through the years, tons of experts have said to save at least 20% of each paycheck. But really, you should try to find what’s best for you; what gives you enough of a safety net and enough to work with.
For Your Business
Reduce Consumption
An easy way small businesses can deal with inflation is to reduce their energy consumption. Mother Earth will also thank you for this! This entails taking just a few steps that’ll save your business money in the long run.
Encourage your employees to shut down and unplug any computers or electronic devices in your office space when not in use or at the end of the day. Try connecting all the computer peripherals to power strips so you can power down several devices at once with a flip of a switch.
You could also switch to energy-efficient light bulbs like CFL or LED. These use significantly less amount of electricity than typical bulbs, and you can find them in most stores these days.
Eliminate and Automate Processes
Condensing and automating repetitive or manual tasks can boost your efficiency, reduce the risk of errors, and cut costs. Some examples of this include replacing paper documents with PDFs, utilizing electronic onboarding forms, and work management software. Rather than jumping through hoops and scrambling to meet in person, everything your team would need could be accessed and completed conveniently. Save time and money!
Importance of Employee Retention
Employee retention is vital to your small business’ success, as it prevents productivity loss and employee turnover. Implementing a team-first mentality can help improve your employee’s happiness at work and help them be more productive. They say that engaged employees are more likely to improve customer relationships, so this can go a long way. Try to create a more supportive work environment for your team. You can do this by encouraging open communication or showing recognition for a job well done. Your employees will appreciate that, and it’ll help everyone.
Reach Out for More Financial Tips
Our team here at Highlands Community Bank loves sharing ideas here to help our community thrive. We post blogs regularly, but we’re also just a phone call away if you’d ever like to ask any questions. We’d be happy to help you!