Understanding Inflation: Five Ways to Protect Your Wallet from Deflating

Written By Naazma Garcia
Jun 27, 2022


As we all know inflation has been skyrocketing for nearly a year now, but what is inflation and how is it measured?

According to U.S Federal Reserve: Inflation is the increase in the prices of goods and services over time. Inflation cannot be measured by an increase in the cost of one product or service, or even several products or services. Rather, inflation is a general increase in the overall price level of the goods and services in the economy.

In simple terms, inflation represents the deflating purchasing power of your wallet. Inflation is caused by an expansion in the money supply, which is the correct definition of inflation. As the money supply increases, purchasing power is decreased.

Inflation is most measured by the Consumer Price Index (CPI), which measures the change in a basket of some 700+ goods over time. The increase in CPI is being driven by what people need most: food, gas, and housing. Everyone has been to the grocery store and gas pump and knows how expensive things are there.  

From GasBuddy, in June of 2021 gas prices hovered just over $3.00 per gallon in the U.S. Today, most of the country is living with gas prices well over $5.00 a gallon, which is a 67% increase. A far cry from the CPI of 8.6% year-over-year released for May 2022 on June 10th.

How to Protect Your Wallet and Purchasing Power

While you may think there is little you can do about inflation and that you are just along for the ride, there are steps you can take to make inflation less painful. The overwhelming consensus is that the inflation numbers we are seeing are not transitory and are here to stay, so the sooner you get your finances in order to deal with inflation the better off you will be.

Budget and Expense Tracking

You should already have a budget in place and know where you are spending your money. If you don’t, now is the time to create a budget. For example a holiday budget (check out some summer staycation ideas). Quick ways to create a budget are to download past bank statements and copy/paste transactions into a budget or write all your spending over two or three days, along with your recurring expenses and put them into a budget. Make sure you budget for entertainment and “feel-good” items. A budget lacking fun is a budget that will not be followed.

Look for areas of opportunity to save money. Subscription services, Starbucks, eating out, pool cleaner, and unnecessary purchases are great places to start. Learn to recognize your spending habits and make a conscious decision to improve them. Check out all our articles about money saving tips.

Become More Eco-Friendly

As energy and gas prices continue to rise, there are several ways becoming more Eco-Friendly can reduce your expenses and reduce the deflation of your wallet. Simple things around the house like checking door and window seals and replacing them if necessary, changing light bulbs to LED bulbs if you haven’t already, and window treatments will all reduce your energy bills in both summer and winter months.

Outdoors look to replace lighting with low-cost solar options, move your pool filtration system to run overnight, and replace screen doors with super solar screens.

Transportation

Depending on where you live, work, and what you drive, some people will have more options here than others. Do you really need that large, gas guzzling SUV or full-size pickup truck? Don’t get us wrong, we love our SUVs and trucks as well, but they are not the most efficient thing to drive. If you need the added room an SUV provides, migrating to a minivan option can nearly double the miles you can drive per tank of fuel. If you just can’t give up your beloved SUV or truck, control your right foot and go easy on the gas. Being easy on the gas pedal can squeak out an additional 3 to 5 miles per gallon on the conservative side.

Download discount gas apps like GasBuddy and Upside and use grocery store discount cards to save money when fueling up.

Take the bus or public transportation if you are able and leave the car at home. Carpool, ride your bike, or walk to work if those are options available to you. If you are in a career where you can work from home, ask your boss if you can work from home a few days a week. Even if these options are only available a couple days a week, they add up.

Groceries and Household Items

For groceries and household items, shop sales, use coupons, and buy store brands. Make sure you are using store discount cards as well. Stick to the outside aisles of the grocery stores where the fruits, vegetables, and proteins are located and avoid the inner aisles full of processed foods. Make a shopping list of items you need before leaving for the grocery store and you’ll be less inclined to pile the things in your cart that you don’t need.

Shop bulk retailers like Sam’s Club and Costco and share the expenses with family and friends. With gas prices as they are, avoid going from store to store for unique items and do your best to purchase all your needed items in one store.

One of the most powerful ways to protect your wallet from deflating is by separating your needs from your wants. Human beings are incredibly impulsive and have grown accustomed to having what we want now. While this isn’t necessarily a bad thing, it can certainly hit your wallet hard in times like these where your wallet is already taking a beating.

Like with your grocery shopping and budget, make a list of what you need versus what you want. Budget in a want or two a month if your budget allows, but cut out impulsive shopping. Shopping is fun, but impulsive shopping for items you don’t really need can lead down a poor financial path. Difficult times like the skyrocketing inflationary period we are living through is a great way to learn financial discipline, which will lead to long-term financial stability.

In Conclusion

Seeing your wallet deflate in front of your very eyes is very frightening and frustrating, but there are steps you can take to protect your purchasing power. If you are still not sure what steps to take, be sure to reach out to the professionals at Americor and we will discuss your options for a brighter financial future. 

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