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How to Handle Inflation-Tips and Strategies

By in Bond, Economics, Inflation, Investing, Stocks | 16 comments

If inflation is so low, then why are my bills and household expenses skyrocketing?

The news is filled with information about the low inflation rate. In fact, the Federal Reserve officials would like the target inflation rate to go up a bit. But there’s some sort of disconnect here. Why are my phone, cable, gas and electric, and grocery store expenses higher than ever if inflation is so low? 

How to Handle Inflation

Maybe this WSJ.com article by Kathleen Madigan, “Inflation is Low, but U.S Consumers Feel a Pinch” has the answer. Apparently, in spite of the fact that the overall inflation rate is below 2%, the price of services is rising while the price of goods is falling.

So you can buy a suit on the cheap, but pay a bundle to get it dry cleaned! Madigan goes on to explain that the inflation in the price of services is caused by increasing rents. But that’s not the whole of it, could it be that there’s greater demand for services and that’s driving up prices? If so, the Fed may be the last to know about it.

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Either way, if you’re not feeling inflation now, you will be soon. So, here’s my personal inflation confession with tips about how to handle inflation and save money.

How to Handle Inflation Inspired By a Visit to Target

I made the deliberate decision to get a Target credit card because they automatically give you a 5% discount on everything you purchase in the store. Add that to the fact that I like the trendy Target merchandise and the grocery items. Sounds like a great plan, right? Target isn’t known as a high end retailer, so why did I have a panic during a recent visit to Target?

Prices are Skyrocketing on Many Consumer Products

I pride myself in being an economically savvy consumer. I know the shopping tricks; buy in season fruits and veggies, check out the per unit cost, buy in bulk, shop with a list, and avoid impulse purchases. But when I got to the bathroom cleaner and saw the $3.49 price on an item I am certain recently cost $2.50 recently, panic began to emerge. Then I went to the grocery section and couldn’t find a box of cereal for less than $4.49. Yikes, what happened to the $2.99 generic brands? And the price shock continued from section to section.

I am certain price inflation is here. I lived through periods last century of tremendous inflation and remember the effect. It’s like you are getting a salary cut.

Tips & Strategies to Handle Inflation

Fortunately, since inflation is a common occurrence, there are reliable coping strategies. Following are some of my inflation busting strategies, for consumers and investors, as well as tips from across the web.

Shopping Tips

  • The main premise of shopping in an inflationary environment is to buy in bulk when costs are reasonable. 
  • Stock up on sale commodity items. With cotton prices sure to rise, clean out the Hanes aisle during their underwear sales.
  • Paper towels, napkins, toilet products and other non-perishables are other products to stock up on when on sale.
  • Don’t forget the towels and sheets during the annual January white sale.
  • End of season shopping is a mecca of bargains.
  • In the grocery, check out the tables of “sale and near expiration date” items.
  • Plan your meals and make a list. No impulse shopping.
  • Consider joining a shopping club to save on those items you use most frequently. Make sure not to get distracted by impulse purchases of a 64 pack of skittles candy or other non essentials.
  • Even if you are not a couponer, consider giving it a try. 
  • In How to Live With Inflation, Philip Brewer, Wise Bread writer, suggests bartering for goods and services to combat rising prices. There are also some nice investing tips in the article.
  • Collaborative consumption is another take on the bartering concept. Great way to get what you need and share what you have.
  • Substitute low cost foods for higher priced ones and use the internet to come up with recipes to fit the ingredients you have on hand. Plug a list of ingredients into the search, and see what comes up.
  • Consignment, second hand shops, and garage sales, especially in fancy neighborhoods, are great for bargains.

Investing Tips

  • Avoid buying bond funds now! With interest rates sure to rise, the principal value of the fund will decline as interest rates rise.

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  • Keep any bond purchases with short maturities, so when rates increase, you will be ready to participate in the higher yields that are certain to come.
  • Maintain a diversified portfolio, as the future is uncertain. It won’t protect you from market declines, but with diversification, when one investment class falls, another may increase.
  • When inflation increases, stock prices usually follow suit. Don’t be afraid to increase those contributions to your stock index mutual funds when you believe inflation is in the wind.
  • Consider these investments backed by the US Government. These two investment vehicles are specifically designed to protect your capital when from the ravages of inflation; Treasury Inflation Protected Securities (TIPS) and Series I Government Bonds.

Now you’re armed with actionable strategies about how to handle inflation. Don’t panic, take charge, and start implementing your inflation-beating strategy. You’ll be ahead of the financial curve.

What are your strategies for coping with inflation?

A version of this article was previously published.

    16 Comments

  1. I went (last year) for the 5% rebate Target credit card too. I also like their store brands. Their prices compete with Costco and there is no membership fee.

    krantcents

    March 13, 2012

  2. Also have the Target (or is it Tarzhay?). While we visit there from time to time, we’ve found it’s not so cheap compared to some local supermarkets.

    Also no mention of buying a separate freezer? Picked one up from Home Depot on sale for $200 and used $100 of gift card points from my AMEX to pay for it.

    Also set aside an area for some baker racks to store your dry goods.

    Investor Junkie

    March 13, 2012

  3. Good advice, Barb. I’ve always heard that you should never go long in treasuries, because you want to be flexible to catch an increase in rates. That might not happen real soon, but it’s good to remember.

    Another way to fight inflation in food is to have a garden. Now is a great time to start planning one and even starting some seeds indoors.

    Maggie@SquarePennies

    March 14, 2012

  4. this is nice article ..it’s gave me a lots of an idea and gives me things that i need to know.
    thanks for shearing this…
    good job…. 🙂

    Nicole

    March 14, 2012

  5. Interesting. I was just complaining to a friend about how I can’t find antiperspirant that’s less than $4. I bought a bunch of it over a year ago when I was going through a couponing phase. I didn’t realize how much the price of the stuff has gone up.

    Not long ago, I stumbled across a rather obscure blog that talked about the cost savings that come along with buying nonperishable goods in an inflationary environment. It made me think, “Hmm. You can actually invest in toilet paper and canned goods.”

  6. This can be a big help to most people especially to me…Thanks a lot for the shared thoughts here…

    Thrixxie

    March 14, 2012

  7. Don’t get me started on Target. I hate that place. Can’t ever find anything I need there. Plus their groceries are laughably overpriced. Sorry for the rant 🙂

  8. @Krantc-I end up spending way too much at the mega membership stores.
    @Maggie-Well, if interest rates were high, it’s good to go long in treasuries, but certainly not now!
    I am committed to planting a garden this year. Plans; tomatoes, grapes to start..
    @Shawanda, That is probably the #1 inflation strategy-stock up on non perishables when they’re on sale.
    @John, I’m afraid to say that their grocery pricing was not the best this week!! Although, I love their decor items on the cheap.

    Barbara Friedberg

    March 14, 2012

  9. Great investing tips! I’m worried about bond funds right now as well. I’m due to rebalance soon and will be taking a look at my target asset allocation. Got to be smart, but also not get caught in short term cycles.

    BusyExecutiveMoneyBlog

    March 14, 2012

  10. I like the buying in bulk strategy. Buying non-perishables like toiletries that will be used in the next 12 months is practical, even if a bit in the “Doomsday Preppers” mold.

    101 Centavos

    March 15, 2012

  11. My plans to cope with inflation? Well, I am a truck driver who works for one of those trucking companies that delivers goods and passes costs to consumers. My hope is that my company will gouge the consumers (in the name of fuel prices) and give all of us drivers a hefty raise!

    Not really. Actually, I don’t waste a lot of time thinking about things I can’t control. Prices go higher, I pay them. No big deal.

  12. @Busy, I recently bought several low investment grade bonds with 3 years to maturity and paying about 3-4%. I’m staying away from bond funds now!
    @101-I am really committed to “stocking up” when the price is right.
    @Matt-I like your attitude!! Very smart to forget about what you can’t control!!! Good luck with that raise:)

    Barb Friedberg

    March 15, 2012

  13. I hate the real inflation gripping the stores, but yet the Fed says there is no inflation. I’m coping by investing in companies taking advantage of rising costs, so at least I can profit on one end.

    • Hi Robert, Smart move. Companies with some price elasticity and can raise prices as their costs go up are certainly worth a look.

      Barb

      March 16, 2012

  14. Something I want to write an article about soon (but have not tried yet) is shopping for meats at ethnic grocery stores. I have heard that the prices cannot be beat.

    Amanda L Grossman

    March 16, 2012

    • Amanda, I just thought about this same topic this morning. We have some amazing Hispanic and Asian grocery stores around here.

      Barb

      March 16, 2012

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