About the Episode
Inflation is a money taboo that definitely can be overwhelming to think about. According to AP News, in 2022, the average inflation rate was around 8% and reached a peak of 9.1% — the highest it’s been in 40 years! Luckily, since then, we’ve witnessed a drop in rates, however, it’s always best to stay prepared. On this resourceful episode of Making it Count, we’re preparing you with all the strategies you need to beat inflation. Today we’re joined by our money-smart friend, Miriam Mitchell, Chief Lending Officer at Addition Financial. With her help, Cristina and Randy dive deep into financial tips to beat inflation!
Background on Inflation
Cristina asks Question 1: “Let's lay down some groundwork first. Can you explain a little bit about what is inflation and how it affects your members?”
Miriam responds: “So inflation is when the prices on everyday goods and services increase and the consumer's purchasing power goes down. So it's simply ongoing increases in the level of prices for everyday goods. So, Christina, you talked a lot about eggs, right? And you're right. A few years ago, we were paying less than $2 a dozen for eggs”
“But today those eggs are going to cost you $4. I mean, that is what inflation is. It's just the increase in the price of things that we purchase every day. And so it's not just the cost of groceries that has gone up. You mentioned gas. We talked a little bit about travel, but also interest rates are continuing to rise. So as the Fed continues to raise interest rates, that's in an attempt to actually reduce inflation. So not only are the things that you're buying more expensive, but it's now more expensive to finance those things. So if you're going to go and buy a car, you're going to pay a lot more for the price of the car as well as a lot more for the loan that you're getting to finance the car”
Cristina follows up: “So they're trying to slow down how much money we spend.
Miriam responds: “So consumers are spending a lot of money and that's why interest rates are rising in an attempt to actually kind of cool down what people are spending. So, you know, there was a lot of money given through stimulus checks, throughout the Covid time period, and people had pent-up demand. So over the last couple of years, we've seen a substantial amount of spending. And so the only way to reduce inflation is to slow spending down.”
Randy asks Question 2: “I know when I think of inflation, the first thing I'm always going to be considering is how it affects my personal finances. So how does inflation impact different aspects of personal finance, like savings, investments, retirement?”
Miriam responds: “Ultimately it affects your purchasing power. So to put it simply, it reduces your purchasing power. So if you only have $100 to spend every week on groceries, for example, and the price of groceries goes up, obviously you're going to be able to buy less than you were able to buy the previous week. So that's a very simple example. But inflation is also tied to the cost of living. So the higher the cost of goods and services that are necessary for everyday life such as gasoline, food, shelter, automobiles, the more stress it's going to put on consumers to make decisions about which needs are most important.”
“So this is often where you hear about people having to make the decision whether to make their car payment or to, you know, pay the electric bill or to buy groceries for their family. And then over time, what happens is consumers may have to actually start taking money from their investments and their savings just to cover daily living expenses. And ultimately, retirement planning takes a back seat because if you are not able to pay for the things today, you're definitely not thinking about, you know, saving for 20 or 30 or 40 years from now.”
Strategies to Beat Inflation
Cristina asks Question 1: “What are some common financial strategies that we as individuals can practice to combat the effects of inflation?”
Miriam responds: “Really just looking at the type of assets that you decide to invest in. So having a diversified portfolio. There are a lot of tools that can help you decide what type of investments to put your money in, target date funds are one example. This fund uses a target date to determine the risk of the investment. So it helps you align your investment with the level of risk that you're willing to take.
“Also look at other industries. So not putting all of your money into just real estate or just tech. Look for investments that tend to outpace inflation. So some examples would be a good mix of getting some stocks and bonds and then maybe adding in some real estate or everyday commodities like electricity, oil, that type of thing. And then just looking at deposit rates, you're seeing many financial institutions right now are offering very lucrative deposit rates on money markets or certificates of deposit. So if your money's just sitting in a regular savings account, making sure that you're actually putting your money where it's going to earn you the most so that you can actually get a better, better deal for your buck..”
Randy asks Question 2: Are there any financial factors people should stay clear of during a high time of inflation?
Miriam responds: I would suggest don't dabble in anything that you're not completely familiar with. So an example would be cryptocurrency. Many people are jumping on the crypto bandwagon and some people are making money doing that, but it's also very easy to lose your investment if you don't understand how it works. Also, just be mindful of your debt, paying attention to what you're spending your money on. I always recommend creating a budget and trying to stick to it. If you have extra money, try to allocate that towards your higher interest rate, credit cards, or loans to try to get them paid down quicker. And if you are paying a really high-interest rate on a credit card or a loan, look to see if there are any opportunities where you could refinance that and actually save some money, you know, to have more go towards principal as opposed to interest.
Randy follows up: That's a good point. You know, we had an episode about this not too long ago, debt consolidation. So shout out to us.
Cristina asks Question 3: “Aside from investing, which you just mentioned, what are some other strategies that you would recommend?”
Miriam responds: “I always recommend paying yourself first. For example, set up just a set amount from each paycheck that you could direct deposit into that high-yield money market or a savings account. That way you never miss it because it never actually goes into your checking account. And then over time, as you get pay raises, take some of that and actually allocate it towards savings as well. So if you're going to get 5%, try to take 2% or 2.5% and put it into some type of savings account. So you'll recognize the increase in pay, but you won't miss what you're actually setting aside. And then as I mentioned, shopping interest rates are really important. Looking for sales, using coupons to purchase everyday items. I mean, I know that's kind of old school, but those small habits can lead to big savings
Randy asks Question 4: “Are there any tools or resources available that we can use to help monitor and track inflation rates to make informed financial decisions.”
Miriam responds: “So there's a lot of great information out on the Internet where you can just track inflation, you can read about what inflation is. But I always recommend talking to your financial advisor or even your local credit union because they can really help guide you when it comes to budgeting and managing your money. There are also a lot of apps out there that are free or very low cost that will help the consumer with budgeting. And if you don't have a smartphone and you don't like to, you know, get on the Internet, an old-fashioned Excel spreadsheet will do the trick for actually managing your money.”
Making It Count Essentials
Randy asks Quick Question 1: “How much does inflation increase? Household spending?”
Miriam responds: “Anywhere from 700 to $1000 per month.”
Cristina asks Quick Question 2: “What would you say is the biggest misconception people have about inflation?
Miriam responds: “I think the biggest misconception is that people think that one political party is to blame for inflation.”
Randy asks Quick Question 3: "What is the best thing someone can do to help them navigate through inflation?”
Miriam responds: "Pay attention to prices, try to shop at discount stores. We have a lot of great ones, you know, Aldi, Walmart, don't always just go into the highest price store to get your groceries or your clothes and try to save money and don't take out unnecessary debt.”
Cristina asks Quick Question 4: “How has inflation impacted you personally? Like, what have you seen that has really affected you and your family?”
Miriam Responds: “Yeah, So I have a son that just turned 16 about two months ago, and so we found ourselves having to buy a vehicle. My husband and I both have our cars and they're paid for. We haven't had a car loan on either of our vehicles. And so when we went shopping for a car, we realized that prices had gone up significantly. And I'm in the lending business, you know, so I know. But, when I started looking at the car payments with higher interest rates, I was just shocked because the last time I had a car payment, I paid 2%. And now we have we have an auto loan now at almost 6%, that we had to finance. And so for us, for our family, that was a big eye opener, just because it was a large purchase that we had to finance. And it really hit our budget.”
Randy asks Quick Question 5: “So to wrap it up, Miriam, what are some of your go-to budgeting tips that you can relate to our listeners?”
Miriam responds: “Obviously monitor where your money is going, but there are simple everyday things that we can do to save some extra money. I know we talked about eating out earlier, so $15 for lunch. If you're doing that every day, that ends up being a decent amount of money over a month's time period. You know, if you're buying Starbucks or Dunkin Donuts every morning for your coffee, that’s around six bucks. Make your coffee at home”
On this episode, Cristina and Randy shared a free investment vocabulary sheet and quiz. Use these resources to brush up on your investing knowledge. Once you’ve studied the vocabulary, test your knowledge with the free quiz.
Posted on Oct 26, 2023