6 ways to help prepare for inflation

Inflation, the general increase in the prices of goods and services over time, is a near-universal economic phenomenon that may impact your wallet in subtle and not-so-subtle ways. Indeed, as costs rise, you may find your own buying power begin to reduce and you get less for your money. But understanding how to prepare for inflation may turn what seemed like a challenge into an opportunity to help strengthen your financial resilience.

Why does inflation happen?

Before diving much deeper, it might help to answer the question “Why does inflation happen?” The causes can be complex, but inflation typically happens when demand for goods and services outpaces supply or when heightened production costs are passed along to the consumer. For instance, if everyone decided to buy a new car at the same time, prices would likely increase due to heightened demand and potential supply shortages. Similarly, if the cost of raw materials to produce a car were to go up, it's likely the price tags on the car lot would soon follow.

While feeling the squeeze of inflation on your wallet isn’t enjoyable, some level of inflation is a natural part of a growing economy. Let’s explore six strategies to help you navigate inflation and keep your financial goals within reach.

1. Developing a budget and tracking expenses

As inflation rises, understanding where your money is going may help you make more informed decisions. A sound budget can act as your roadmap, guiding your spending decisions and potentially helping you navigate economic fluctuations with confidence.

There are many budgeting strategies you could consider, from a basic budget spreadsheet to the 50/30/20 budget and beyond. Whichever budget you choose, remember that budgeting is ideally about enhancing your freedom, rather than limiting it. Laying out your income, essential expenses and discretionary spending can give you a bird’s-eye view of your financial landscape, which may help you adjust spending habits, improve financial stability and save money during inflation.

Remember that good budgeting is supported by accurate expense tracking. From coffee to monthly subscriptions, routine costs can add up fast. Monitoring these expenses might give you a clearer picture of where you can potentially cut back without significantly affecting your lifestyle. Reducing expenses doesn’t necessarily mean giving up things you enjoy. It's about making smarter choices and prioritizing the things that matter most to you.

2. Cutting costs at the grocery store

For many people, food is a substantial portion of their budget and understanding how to save money in the kitchen may lead to significant savings over time — especially when inflation hits. Here are a few ideas to consider:

• Promotions: Coupons and sales are time-honored ways to reduce grocery bills. Actively seeking out and taking advantage of these deals might help lower the price tag on your routine shopping cart. Of course, the key is to use coupons and sales wisely, buying items you are likely to use and enjoy — certain sales may be attractive, but spending money to save money still boils down tomoney being spent.
• Bulk purchases: Non-perishable items, such as rice, pasta and canned goods, often come with a lower per-unit cost when bought in larger quantities. Just remember that everything — even long-lasting foods — have expiration dates, so it's best to plan accordingly.
• Meal planning/prepping: Another way to prepare for inflation at home is through strategic meal planning. By basing your weekly meals around what’s on sale or in season, you might be able to cut costs while enjoying a variety of high-quality meals. Preparing your meals ahead of time may also have the added benefit of reducing the pressure to eat out and enable greater control over your meals.

3. Taking advantage of cash-back and rewards programs

When you’re figuring out how to combat inflation as an individual, cash back and rewards programs may be helpful. Offered by many credit cards, retailers and various loyalty programs, these promotions might help shave off some of the inflationary pressure by returning a percentage of your spending back to you or accumulating points for future purchases. Retailer-specific programs might even provide special discounts or exclusive access to sales, potentially leading to considerable savings if they match your regular spending habits.

Just remember to fully review and understand the terms of any program you choose. Prioritizing programs that already align with your personal spending patterns might help turn your everyday spending into a proactive strategy to help mitigate the impact of inflation. Be mindful, as the Federal Reserve manages inflation by raising interest rates, your account’s Annual Percentage Rate (APR) may increase along with the prices of goods and services.

4. Saving money on transportation

Getting from point A to point B without breaking the bank may be one of the keys to saving money during inflationary periods. Let’s look at a few ways you might cut commuting costs when prices start to rise.

• Carpooling: Carpooling is a classic solution that may be beneficial for daily commutes or regular trips. By sharing rides with friends, colleagues or neighbors, you might be able to split fuel costs, decrease wear and tear on your vehicle and even cut back on emissions.
• Public transportation: In urban areas, public transportation is often a cost-effective and potentially convenient alternative to driving. Buses, trains, trams or subways can typically take you to your destination for a fraction of the price of fuel and parking. Plus, you can use the travel time to catch up on reading, work or even just some well-deserved relaxation.
• Biking or walking: For shorter distances, you might consider biking or walking, if feasible. Not only are these options cost-effective, but they also provide a great way to get some exercise and enjoy the outdoors. Indeed, turning your commute into a walk or a bike ride might even bring a breath of fresh air to your daily routine.
• Telecommuting: Last but not least, telecommuting has emerged as a viable option for many professionals. If this is an option for you, working from home may lower or potentially even eliminate commuting costs altogether.

5. Saving money on entertainment

For many of us, it might be easy to lose track of our spending in this area. But with some smart tactics and careful consideration, you might be able to curb costs without impacting your free time.

• Canceling unused subscriptions: Many of us subscribe to numerous services, be it streaming platforms, online gaming services or monthly book clubs. These services might go underused (or unused entirely) more often than we realize. Regularly reviewing and canceling or at least pausing unused or unneeded subscriptions may free up funds in your budget without significantly impacting your standard routine.
• Bundling entertainment packages: Many service providers offer bundles that allow you to access several entertainment platforms for less than the cost of individual subscriptions. Music streaming, TV and movies, online publications — checking if bundling options are available might lead to notable savings and a simpler, more streamlined billing process.
• Exploring free or low-cost events and activities: Local community events, free online classes and nature activities typically offer entertainment without a high price tag. It might be worth checking local listings, community boards and social media pages to discover new (and often free or low-cost) activities in your area.
• Hosting gatherings at home: Inviting friends or family over for a movie night, potluck dinner or game night may be a fun and cost-effective way to hang out without spending extra on entertainment.

6. Building an emergency fund

Another important step in learning how to prepare for inflation involves building an emergency fund. This is a stash of money set aside to cover financial surprises. An emergency fund acts as a buffer, and may offer some level of protection and financial stability.

However, an emergency fund isn’t built overnight. It takes regular, consistent savings over time. Starting small and gradually increasing your contributions as your budget allows, often with the help of automated deposits, may be a tangible step toward buffering your financial resilience.

In summary

Learning how to combat inflation underscores the importance of financial mindfulness in our daily lives. From reviewing our transportation habits to auditing our entertainment expenses, every aspect offers opportunities to buffer against rising prices. Instead of drastic changes, some tactics that may help overcome the affects of inflation may be small, proactive, well-informed decisions that you perform over time. Remember, navigating inflation is a marathon, not a sprint, and being financially prepared empowers you to stay on course toward your financial goals.