During inflation, consumers can adjust their spending and saving strategies to help lessen the impact that inflation has on the value of their money. It’s important to have liquid cash set aside for emergencies, but beyond an emergency fund, there are other ways to save money and help retain its value. These methods include seeking out higher interest rates on bank accounts, retooling your budget and spending, investing your excess cash or buying treasury bonds. No one knows how long this interval of high inflation will last, but the government will adjust the federal funds rate to help slow the economy and prevent hyperinflation.
When it comes to spending power, inflation means that things cost more and that your money becomes less valuable. When a period of high inflation hits — like right now — you may want to consider changing up the way you handle your finances to help protect the value of your cash.
“Inflation is a time for investors and savers to reevaluate their strategies,” says Walter Russell, CEO of financial adviser firm Russell and Company.
Through the Federal Reserve, the government tries to combat inflation on a large scale by raising the federal funds rate, which is the interest rate that commercial banks use to borrow and lend money to each other.
When the cost of borrowing becomes more expensive, higher interest rates trickle down to consumer products such as loans and mortgages, making them more expensive. But higher interest rates may also apply to deposit accounts, meaning that banks start to offer higher interest rates on checking, savings and certificates of deposit.
No one knows what the future will bring, but by making changes to how you spend and where you keep your money, you may be able to weather times of inflation more easily.
Here are some ways to save more during periods of inflation.
LOOK FOR HIGH-YIELD INTEREST RATES
It can be frustrating to not be able to get loans for big purchases as easily during periods of high inflation. Still, consumers can take advantage of higher interest rates on bank accounts to fight the effects of inflation on their cash. Bank account interest rates usually don’t totally beat the rate of inflation, but these accounts can help hedge against inflation far better than keeping cash at home or in a low-rate account.
The national average annual percentage yield for savings accounts is 0.06%, according to the Federal Deposit Insurance Corporation, but there are plenty of financial institutions that offer rates that are much higher — some even 1.00% APY or more. To find these rates, you can research high-yield or high-interest accounts and choose the bank that works best for you.
FIND WAYS TO KEEP COSTS LOW
If you haven’t looked over your budget in a while, now may be a good time. During the pandemic, you may have subscribed to multiple streaming services that you don’t use anymore, or you might be spending more money dining out or paying for more convenience services now.
Some people are taking even more radical steps to save money. Amanda Claypool , a financial blogger based in upstate New York, has recently made larger lifestyle changes to keep her costs low in the face of inflation. She spent 2021 living out of her car while driving around the country and plans to return to that way of living soon to save on housing costs. She’s also been trying to trim her budget by biking 16 miles round-trip to work and by eating more rice and beans, a cheap but healthy meal.
“I’m concerned about rising food costs and the impact that will have on the entire supply chain,” Claypool said through direct message. “I’m using the time now to prepare for future food insecurity by learning what food my body actually needs compared to what I enjoy eating. This might seem drastic, but it’s helping me save money and eat better in the short term.”
Not everyone can or wants to move into their car, but Claypool’s money-saving tactics can work on a smaller scale. You can bike more often instead of driving everywhere, and you can reevaluate your food budget to add more cheap healthy meals. For a bigger change, you could downsize your housing to save even more money.
CONSIDER INVESTING OR BUYING BONDS FOR LONG-TERM SAVINGS
It’s a good idea to keep short-term cash — like an emergency fund — accessible in a savings account, but if you have savings that you don’t expect to need for a year or more, you may want to consider investing those funds or buying a treasury bond.
“For someone who has a lot of cash sitting on the sideline, (investing) could help you not lose money,” Russell says. “More people might be willing to take on more risk because they want a higher rate of return.”
Russell also recommends that consumers look into getting TreasuryDirect Series I savings bonds, which can give an interest rate of over 7% on up to $10,000 for a one-year term. These bonds are basically like a certificate of deposit: You put your money in one for a year, and by the end of the year you have a guaranteed rate of return that hopefully stays higher than the current rate of inflation — so your money won’t lose value.
The government will continue to review inflation data and make appropriate changes to the federal funds rate. However, there are other factors that may slow inflation in the coming year, such as changes to global supply chains that might free up inventory and lead to lower prices for goods. No matter whether inflation goes up or down, though, it’s a good idea to keep an eye on ways to optimize your savings.
To fight inflation, take down food expenses. Here’s how
Expert tips for saving money on food
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Like many shoppers, I’ve noticed my grocery bill getting bigger each week: February food prices were 7.9% higher than they were a year ago, according to the U.S. Department of Agriculture’s Economic Research Service. To compensate for my family’s busy spring schedule, I’d also been turning to shortcuts like prepackaged snacks and meal kits, which further added to our total bill.
To counteract these pressures, I applied all my go-to savings tricks: opting in to my grocery store’s loyalty program for extra discounts, using a credit card that gave me bonus cash back on grocery purchases, and planning our weekly menus around sales. Still, shopping for my family of five continued to give me sticker shock.
For extra guidance, I turned to budgeting and cooking experts with experience making food spending more manageable, as the USDA predicts food prices will continue to increase, growing 4.5% to 5.5% in 2022.
Here are their best tips for saving money on food:
Control what you can
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While so much about the economy can feel completely outside of our control, including rising interest rates, inflation and supply chain challenges, our food spending is actually one area where we hold a lot of sway, says Erin Lowell, a Bowdoin, Maine-based lead educator at You Need a Budget, a budgeting app . By spending more time cooking or substituting cheaper ingredients, you can feel an immediate savings impact, she says, unlike with other costs, such as bills or rent, which can be harder to change.
Lowell suggests assessing how much effort you’re currently putting into minimizing your food spending and taking that effort up to the next level. For example, if you currently order pizza for delivery, then consider buying a nice frozen pizza for a quarter of the cost. If you already buy frozen pizza, then consider making your own from scratch for just a few dollars’ worth of ingredients.
Plan your meals
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“When people are overspending on food, it’s almost always because they’re eating out too often,” says Jake Cousineau , a personal finance teacher in Thousand Oaks, California, and the author of “How to Adult: Personal Finance for the Real World.” He says planning ahead is key to combating the temptation to order takeout at the last minute.
“If you meal prep on Sunday and make six to seven meals, you’re not faced with that decision of ‘Should I order out or prepare food?’ every night,” Cousineau says. He typically cooks meat for Sunday that he can use in tacos, pasta and salad later in the week, for example. “You can do the heavy lifting Sunday, then mix and match throughout the week.”
Planning also helps you avoid food waste, which is another budget killer, warns Rob Bertman, a certified financial planner and family budget expert in St. Louis. “Buy in bulk for things you know you will go through, but if food sits in the freezer or pantry and gets thrown in the trash, that gets expensive.” He and his wife keep a list of the potential side and main dishes they have on hand in the freezer, fridge and pantry so they don’t forget to use those ingredients.
Photo by Ella Olsson on Unsplash
Be resourceful in the kitchen
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Maggie Hoffman, a Brooklyn, New York-based digital director at cooking website Epicurious, suggests substituting recipe ingredients for ones you already have at home. “Be confident in your cooking: If you have farro, use that instead of brown rice. Use hot sauce or vinegar instead of lemon.”
Hoffman also recommends “next-overing,” which is transforming the previous night’s dish into something new. Roast chicken one night can become enchilada fillings the next, for example.
Beans, which are generally inexpensive, are also a flexible staple, she adds. You can serve them on their own or add them to salads or soups. “Beans are still the greatest thing around. Just give them a little marinade, add garlic and make sure they’re seasoned.”
Photo by Tijana Drndarski on Unsplash
Keep your pantry well-stocked
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Investing in staples can end up saving you money because then you can quickly make last-minute meals instead of ordering in. “I try to keep five to 10 easy, budget-friendly meals in the house at all times,” Lowell says. For her, that list includes ingredients for homemade pizza, frozen fish with fries, and a pasta dish. “It’s never expensive, and I’m always happy to eat it.”
Photo by Annie Spratt on Unsplash
Lean on your community
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While some local food banks have eligibility requirements, many are open to all members of the community who need the support, says Willa Williams , an Orlando, Florida, area financial coach at Trinity Financial Coaching and co-host of “The Abundant Living Podcast.” Some neighborhood gardens similarly offer the community vegetables and other produce at harvest time. “The food is here, so come and get it,” she says. “It keeps you from spending your food budget.”
My grocery bill is still higher than I’d like it to be — even the savviest shopper can’t outsmart this level of inflation — but it’s more manageable with these tips. And my children have learned some frugal habits of their own, such as the simple pleasure of cooking lentil soup for dinner and the savings that come from packing their own snacks.
Photo by Joel Muniz on Unsplash
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