Help! Everything is Getting More Expensive (aka How to Deal with Inflation)

Inflation means things get more expensive. We are seeing everything go up in price – from everyday items like groceries to cars and houses.

Inflation is like the weather – everyone loves to talk about it, but no one can really do much about it. Governments worldwide, all-powerful central banks, and business leaders are all trying hard to tame inflation – but without much success.

What is causing this inflation, and how can we deal with it?

Drivers of Inflation

The biggest reason for the current inflation is the massive amount of money that has been printed. Governments have issued new money to help people deal with the effects of the global pandemic.

As a result, consumers now have extra money that they can use to buy things. This pushes up prices.

On the other hand, fewer things are being produced because of the great resignation. Millions of people have left the workforce for good. This lack of workers impacts everything – from the production of raw materials to the manufacture of finished goods.

On top of that, companies are realizing that even if they can somehow manufacture things, it is getting incredibly hard to transport them to the consumers. There are significant shipping delays and a massive shortage of truckers.

In summary, consumers have money to spend which is driving up prices. And there is less stuff for them to buy because of a shortage of workers and transportation bottlenecks, further increasing prices.

How long will it last

Over time, the reasons causing this inflation – supply and demand – will cause the inflation to go away.

Supply will ramp up as companies start making more stuff to take advantage of higher prices. Also, demand will decrease given the high prices.

The transportation bottlenecks are also something that will get resolved – there is just too much innovation happening in this area to let these problems persist for long.

Lastly, the powerful undercurrent of technology and automation will take care of the labor shortage. Over the last couple of years, every company on earth has adapted to make do with less staff, and this trend is only getting started.

This will not happen overnight, but I think inflation will be more of a 2021 story than a 2022 story.

Dealing with Inflation

The first thing to do to fight inflation is not to make the problem worse – by compounding inflation with lifestyle inflation.

The other obvious thing to do is to be frugal and buy less stuff. We came up with a simple but sustainable saving strategy that helped us keep our expenses in check. Over time we reduced our spending in almost every area: Transportation, Health Insurance, Groceries, Utilities.

Owning assets like stocks and real estate is also a good way to deal with inflation. Almost everyone owns a house, and houses go up in value as inflation rises.

Take More Risks

The Finer household was risk-averse – we preferred to save our money in the bank.

However, we realized that lower risk also means lower returns. Our bank interest was lower than the inflation rate, so we were actually losing money every year!

Over time we switched to investing in stocks. We invested small amounts every month in companies we understood.

Taking more risks does not mean going out and buying the latest cryptocurrency or investing all your money in an NFT. It means taking calculated risks and investing a portion of your portfolio in stocks, real estate, commodities, etc. – basically things that can grow faster than inflation.

You can also take different kinds of risks – for example, starting a side-hustle without leaving your job. Or by investing in yourself to learn a new skill.

Or even take the risk of asking for a raise at your current job! The good news is that employers are more likely to give pay raises during inflationary times.

Americans are getting stronger; twenty years ago, it took two people to carry ten dollars’ worth of groceries… today, a five-year-old can do it.
Henny Youngman

Never Stop Learning

It is not enough to be good at your job in today’s world. You also need to know how money works. I think financial literacy is just as critical as learning to read and write, and our education system does not do a good job of teaching about money.

The best way (apart from reading MrFiner blog, of course!) is to keep abreast of the latest financial news. It is not as fun as following your favorite sports team or spending time on social networks, but exciting things do happen in the financial world also!

Lastly, it is essential to remember that inflation does not last forever. Eventually, the price rise will slow down to a more normal pace. The good news is – if you are already frugal and invest regularly, then there may not be a need to change anything.

We haven’t changed anything at the Finer household!

Related Article: Simple investing may be the best

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