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Inflation is putting financial pressure on U.S. households. Consumers are now paying 8.5% more for goods and services than they were in March 2021, according to the U.S. Bureau of Labor Statistics—that's the highest rate of inflation over a 12-month period since 1981.
Cost hikes make it harder for people to pay for expenses and erode the buying power of money in savings. Bloomberg economists estimate that U.S. households are paying an extra $433 per month, or $5,200 per year, on expenses due to inflation. And the burden is especially high for low-income households, for whom spending on housing, groceries, energy and transportation makes up a higher portion of income.
Adjusting your budget to cut expenses anywhere you're able can help you weather higher costs. Here's how to save money now to fight inflation.
1. Cut Costs at the Grocery Store
Grocery costs are up 10% for the one year ending in March 2022, according to Bureau of Labor Statistics data. All food categories increased in cost, but some foods have been hit harder by inflation: Meat costs were up 14.8%, fruits and vegetables 8.5%, and pasta and rice 9.3%.
Unfortunately, food prices aren't likely to stop rising soon. The U.S. Department of Agriculture (USDA) March 2022 Price Outlook predicts grocery prices will increase more before the end of the year. Here are tips to save money on groceries:
- Come up with a food spending plan. Comparing your budget with the USDA's food spending plans can help you assess how your spending compares with suggested averages. For example, the USDA estimates monthly food spending for a male 19 to 50 years old is $278 on a low budget, $348 on a moderate budget and $427 on a high budget.
- Opt for cost-effective foods. Meat prices are among the most elevated due to inflation, so eating more meatless meals is one way to cut back on grocery costs. Try building meals around low-cost staples such as pasta, rice, dried or canned beans, potatoes and eggs. Canned and frozen fruits and vegetables tend to cost less than fresh, and swapping name-brand products for generic versions can help you save money without noticing a major difference.
- Meal plan. Create a meal plan each week to avoid impulse shopping or relying on takeout during the week. To save more, try searching for recipes that use ingredients you already have in the pantry and fridge, or plan meals using your grocery store's weekly sales flier. Do your best to stick with your list, and try going to the grocery store on a full stomach to avoid tempting impulse buys, which can derail your food budget.
- Comparison shop. Compare the price of grocery products by weight to determine which option is the best value. You may also be able to save by buying staples such as pasta, canned goods, pancake mix or toilet paper in bulk from stores like Costco and Sam's Club.
2. Save Money on Transportation
Gasoline prices rose 38% from February 2021 to February 2022. As of late April 2022, the average price for gas nationally was $4.12, according to AAA.
If surging gas prices are blowing your budget, your first course of action could be limiting your driving as much as possible. If your work allows it, ask to work from home more often. Running your errands in batches, carpooling or using green transportation options such as public transportation, biking or walking anywhere within a short distance can also save you money.
You may be able to save at the gas pump by taking advantage of fuel savings programs at your local gas station. Many gas station chains offer discounts for signing up for text messaging, for example. A gas rewards credit card could also help you earn points or cash back on gasoline.
Last, consider lowering the cost of your car insurance. You may qualify for a lower auto insurance rate than you're paying now based on factors such as your credit score (depending on your state) and your driving history. Comparison shop for auto insurance, which you can do for free with Experian, to see if you could save.
3. Plan Ahead for Cheaper Vacations
Airfare was 20% more expensive in March 2022 than pre-pandemic flight costs in March 2019. And with dining, hotels and gasoline up in price, too, this year's vacation is likely to cost you more than in previous years.
It may make sense to push back large vacations, if that's an option for you. Taking a staycation, where you stay close to home and visit local attractions, take day trips, eat at local restaurants and relax at home, can save you a lot of money now—which may make taking your dream vacation without accruing debt easier down the road.
If you have your heart set on traveling this year, plan in advance for a trip you can afford. Book your flights ahead of time—ideally at least six months in advance—and comparison shop airfare rates using online savings tools such as Hopper and Skyscanner. Having flexible travel dates can help you select the cheapest flights, as prices vary depending on the day of the week.
You can also save with a travel rewards credit card that provides a percentage back on qualified purchases in the form of points or miles. Redeeming your accrued points or miles for airfare and hotel bookings can save you a lot of money on travel, as long as you avoid paying interest charges that negate your rewards.
4. Check Your Budget
It's always wise to audit your budget periodically, as your goals and spending habits change over time. And when drastic price increases squeeze your budget tighter, evaluating your spending and building saving into your budget becomes all the more critical.
If you're already tracking your spending in a budgeting app or spreadsheet, look over how your spending measures up against your goals. If you've set limits for certain categories, are you sticking to your budget? Readjust your spending goals to ensure you're allocating enough to each category, or commit to reducing spending if you find you're living beyond your means. If you aren't already using a budget, you should start one now.
Look for areas to cut back. Are you paying for a gym membership you don't use? Burning up cash on multiple subscription services you don't need? Spending more than your budget allows on retail? Spending less on these discretionary items could give you an instant cash flow boost.
You can also try lowering your regular expenses and energy costs by negotiating your utility bills, as well as your subscriptions, memberships, cable, phone and internet bills.
5. Pay Down Credit Card Debt
As the price of just about everything increases, it can be tempting to rely on credit cards to afford your expenses. But taking on debt can stretch your budget, and as the Federal Reserve raises interest rates to combat inflation, credit card debt can become even more expensive and difficult to pay down.
Making more than the minimum payment on your credit cards is critical to paying them off. To make larger debt payments and get rid of debt faster, consider these methods:
- Use a debt repayment strategy. The debt snowball method and the debt avalanche method are two ways to make aggressive payments on one card at a time, which can help you stay motivated or help you save on interest.
- Consider a balance transfer. If you have good credit, a balance transfer credit card with a 0% introductory APR period may help you consolidate your debt and save on interest while you make payments.
- Consider a debt consolidation loan. Like a balance transfer card, consolidating your credit card debt into one loan can be a good way to manage your debt by allowing you to make just one payment a month, ideally at a lower rate. But be sure that your score qualifies you for better terms before you apply. If you do get a loan, commit to not using your credit cards or you could end up in an even more serious situation.
6. Earn Money on Your Savings
Most saving methods can't outpace the rate of inflation, but putting your money somewhere where it will earn higher interest can reduce the eroding effects of inflation.
For a long-term savings option, Treasury I bonds are a smart choice because they're a safe, government-backed bond designed to match or beat the rate of inflation. I bonds are set to deliver 9.2% returns as of May 2022, according to Forbes. That's a strong return for an investment that carries virtually no risk of losing your initial investment. You can purchase up to $10,000 a year in I bonds directly from TreasuryDirect.gov, and an additional $5,000 through your tax refund.
However, I bonds aren't a good option for housing short-term savings because you have to leave your money deposited in the bond for at least five years to avoid paying a penalty. For savings you need to keep liquid, such as your emergency fund, a high-yield savings account can help you earn more interest than a traditional savings account.
The Bottom Line
Inflation makes basic housing, energy, food and transportation costs more expensive. If your budget is under pressure, create a strategy to cut costs wherever you can. Economic stress can make credit management more difficult. Experian's free credit monitoring allows you to track your credit report and see how factors such as your credit utilization ratio and payment history are impacting your score.