Banking » Guides » Bets Ways To Save Money During Periods Of High Inflation
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Bets Ways To Save Money During Periods Of High Inflation

Saving money during inflation can be challenging and frustrating. Here are our strategies to save more without drastic changes in your life
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024
The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024

The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.

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Table Of Content

During turbulent economic times, it can be difficult to make ends meet let alone save money. When there are periods of high inflation, many households struggle to stretch their income, but there are still ways to save money.

Why It’s More Difficult to Save During Inflation?

There are a number of reasons why it can be more difficult to save during periods of high inflation. These include:

  • Higher Cost of Living: When the rate of inflation is high, the cost of living is also higher. This means that you will be paying more for gas, groceries and other essential expenses. So, although your salary may stay the same, you will need to find more money to feed and clothe yourselves and manage your home. Even something as basic as transport to and from work may cost you significantly more since gas prices also rise.
  • Compromised Buying Power: Although during high inflation, savings rates tend to increase, this is still not enough to compensate for the compromised buying power. For example, if the savings rate is 4%, but inflation is 8%, this means that after one year, your savings are worth less. This means that if you had $1,000, while you may have $,1040 after one year, the actual value of your money is less than if you had spent the $1000 rather than putting it into savings.
  • Higher Cost for Servicing Debt: The interest rates for all products go up with inflation, so while you may earn more on savings, you also pay more on debt. Unless you have a fixed rate agreement, servicing credit cards, loans, and mortgages will cost more.
  • Financial Uncertainty: During inflation, there is a great deal of financial uncertainty, which can make it difficult to find the motivation to save. If you have no idea whether that new car, vacation or other large purchase will cost far more next year or in five years, it can feel like you’re on a never ending saving journey.
 

How To Save During Inflation?

Here we’ll explore some strategies to help you to get your finances back on track regardless of the rate of inflation.

1. Reduce Debt

While it may seem counterintuitive to pay down debt when you want to save money, this actually is a great strategy. Since your debt will be costing you more to service, if you can pay it down, you can start to find extra money, potentially for savings.

There are several ways to reduce your debt, including a balance transfer credit card if you have good credit or a debt consolidation loan. Ideally, your new debt product will have a fixed rate so that you will know how much you’ll be paying regardless of whether the inflation rate continues to increase.

If you want to potentially save the most, focus your efforts on paying down the accounts which have the highest interest rate, such as credit cards.

2. Reassess Your Budget

If you already have a budget in place, now is the time to reassess it to reflect the current situation. If you don’t already have a budget, you’ll need to create one.

If you want to make serious attempts for savings, you will need to cut down any unnecessary expenses and costs. While you can’t expect to live an extremely frugal life, there may be some areas where you can make compromises and savings.

For example, instead of dining out with friends, organize potlucks or have a schedule for dinner parties. Cooking your own food is far cheaper than dining out, but you can still have a social experience with your family and friends.

Another way to trim your budget is to cut down on your streaming services. Many people have multiple streaming subscriptions, but you can rotate your subscriptions to save money.

For example, you could have Netflix for three months and then cancel it and run Disney+ for three months. This way you will still get to watch all your favorite shows, but you won’t need to pay for multiple subscriptions at one time. Additionally, many platforms will try to entice you back if you cancel your membership, which means that you may get a discounted rate.

3. Get a Side Gig

If none of the above ways provide a significant enough dent to your expenses to save money, you may need to consider getting a side gig or part time hustle. This will allow you to increase your income and funnel this extra money into your savings.

There are side gigs to suit all skill sets and interests from working online to delivering food and groceries. Many platforms allow you to join and find work with minimal fees. Just bear in mind that these gigs are typically freelance, which means that you’ll need to be responsible for paying tax on your income.

So, it is a good idea to set money aside from your earnings to cover the tax in a separate account. Otherwise you could get a nasty surprise come tax season.

4. Shop Around

Many of us like our routines, so you may have been shopping at the same grocery store for years. However, this does not necessarily mean that you’re getting the best prices. So, it is worth checking out what other stores in your area offer. Grocery credit cards can get you discounts as well.

Of course, there is no point in driving hours out of your way to save a few cents, as you’ll spend more on gas. However, if you have your regular meal plan for the week, you can often scan offers and deals on grocery store websites. This will allow you to see which stores can provide the best price deals for your typical meals.

You can also stock up when you see great deals on things that you regularly buy. So, rather than buying one can of tomatoes each week, buy six when they are on a three for two deal. However, be sure to keep a track of how much you’re spending, so you don’t exceed your shopping budget.

5. Adopt Energy Saving Strategies

Another way to create some extra money in your budget to save is to adopt energy saving strategies. The cost of energy often skyrockets when inflation is high, so it is important to be energy aware. You may already do basic energy saving measures such as turning off lights when you’re not in the room or switching off devices when you’re not using them.

However, there are other things that you can do. For example, you can negotiate a more advantageous tariff with your energy provider. This often involves different rates for peak and low demand periods, so you’ll need to plan your activities accordingly.

This could mean washing laundry at night rather than daytime or setting your hot water heater to run at different times.

6. Budget for Savings First

This is a more controversial tip as many people struggle to see the logic of putting money into savings before paying all of your essential expenses.

 However, if you put money into your savings account as soon as you get paid each week or month, you can forget about it. You also then know that every cent in your account is available to cover your costs.

Budgeting for your savings first will also encourage you to stick to your budget. Since the money is already in your savings account, you cannot spend it by accident if you overspend at the grocery store. You’ll be forced to spend less on your groceries next week to compensate.

best ways to save money during inflation
Budget for savings first, and don't forget to shop around. (Photo by Damir Khabirov/Shutterstock)

What To Do With Savings During Inflation?

When you have managed to put some money together, what should you do with your savings during inflation? While many people tend towards the stock market, this can be incredibly risky, so if you are more risk averse, there are some low risk options that may be more preferable.

This is a great option if you need access to the funds at any time for an emergency. High yield savings provide a good rate of return, but there are no penalties if you need to make a withdrawal.

The only limitation is that you cannot make more than six withdrawals in any statement period. Additionally, many high-yield savings accounts are not supplied with an ATM card, so you need to transfer the funds into another account if you need access to cash.

CDs tend to offer higher rates, particularly compared to standard savings accounts, but the caveat is that you need to tie your money up for a set period. However, many financial institutions offer short term CDs with a term of as little as one or three months.

 Just bear in mind that typically the shorter the term, the lower the rate. Additionally, unless you opt for a no-penalty CD, you will incur a penalty if you need to withdraw before your CD matures. If you want to maximize the protection against rising inflation, it is a good idea to stick to shorter term CDs, or implement a CD ladder.

Government savings bonds are one of the safest investment products, and they offer a guaranteed rate of return. Essentially, you are loaning money to the government for a period of time and you’ll receive payment for this.

You can purchase government bonds via the treasury website and Series I bonds are designed to protect against inflation with a fixed rate that is reset twice per year according to the rate of inflation.

You can cash in after one year, but you will incur a penalty if you don’t hold your bond for at least five years. You can continue to earn interest on your bond for up to 30 years.

FAQs

Generally, although interest rates rise when inflation is higher, it is still lower than the rate of inflation.

Inflation reduces the buying power of your savings. As inflation increases and the cost of living is higher, it means that the money in your savings account can buy less.

Imagine if you have $100 and a loaf of bread costs $1 in year one, you could buy 100 loaves. However, in year two, if inflation has caused bread to increase in price to $1.50 per loaf, even if you earned 4% on your savings, your $104 would only buy 69 loaves.

It is always a good idea to have an emergency fund, particularly when there is high inflation as you may need to cover unexpected expenses.

However, if you’re carrying debt, it may be a good idea to pay down your debt as it will be costing you more as variable rates increase. So, if you already have your emergency fund, concentrate on clearing your debt.

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Picture of Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
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