Coping with Inflation

Any trip to the grocery store, gas station or restaurant recently has revealed prices have dramatically increased this year.

It’s a timely and urgent topic. According to a?recent?Forbes?article, two out of three Americans say they’ve had to dip into their savings accounts to cover living expenses.

Inflation is, of course, an increase in the price of goods and services. Inflation corresponds to a reduction in our purchasing power.?

I asked Dwayne Clendaniel, Sharonview’s lead investment advisor in Charlotte, North Carolina, for his thoughts on inflation, and he told me what he tells his clients.

“Too much money chasing after too few goods,” he said The COVID-19 pandemic was the perfect set-up for inflation. Manufacturing shutdowns, service disruptions and supply chain issues met with the money Americans had from the government stimulus package.?

“To put it in terms a six-year-old could understand,” he said, “in my day, I’d buy a toy car with the proceeds of one tooth left for the Tooth Fairy. Today, that same toy car will cost you five teeth.”

I also checked in with Chuck Coveney, our investment advisor in Spartanburg, South Carolina. The three of us compiled a list of what we hope will be useful pointers to deal with inflation.

• Save where you can.?With gas prices still high, my wife and I have become “fuel points” junkies. We do most of our grocery shopping at stores that offer fuel points. Using coupons helps, too.
• Revisit your budget.?Dwayne?said: “Examine your budget and cut back or reduce where you can.” Before buying anything, he suggests asking: Is this a need or a want??
• Pay yourself first.?Try to stay disciplined on your savings and retirement plan contributions. This is especially true if you are lucky enough to work for a company that offers a 401(k) with employer match. If you’re saving for your child’s college education, do everything you can to continue?funding college savings accounts.
• Be thrifty.?I was pleased to see how creative my college daughters have been in the thrift store market. They’ve been on both the donating and buying sides. My daughters sold some of their clothes at Plato’s Closet, a national chain of stores where you can get paid for your gently used clothing and accessories. They were then able to use the proceeds for college spending needs.?
• Seek advice from a pro.?“Whenever someone is making decisions about forgoing long-term goals to address short-term needs, it’s always good to speak to a qualified advisor,” Dwayne?said.
• If you’re able, pay down credit card debt.?For people with multiple outstanding credit card balances, I always recommend paying as much as you’re able toward the card with the highest interest rate. You’ll often hear that you should pay off the lower balances first, and perhaps that is credible advice in that you can celebrate the payoff of one card. However, in an inflationary environment with rising rates, I think it makes sense to target the card with the highest rates.?
• Consider a?home equity line of credit.?If you’re a homeowner, you may be eligible for a HELOC loan, which you can use to pay down higher-interest rate loans. If you are not a homeowner or already have a HELOC, your credit union may be able to provide a personal unsecured loan to consolidate your debts.?
• Consider your car.?New and used car prices are elevated now. You may want to put off any car purchase you may have been mulling over?unless?you can justify it by moving to a more fuel-efficient vehicle.?
• Time your vacation.?If you have enough money to enjoy a vacation, consider going in the off-season. You may be able to negotiate a better rate on your accommodations and enjoy sparser crowds.
• Consider joining a credit union.?A credit union is a good choice anytime, but?especially?during a potential recession. If you’re overwhelmed with multiple card balances and/or unsecured loans, a credit union may be a great place for you.

“Nonprofit credit unions exist to serve their members,” Dwayne said. “Generally, members should expect better rates on deposits and lower rates on loans than they would at a bank.”

Chuck added: “Moving to a credit union can save money on fees, interest rates and offer higher rates on savings. The customer service and education we offer is another bonus.”?

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