How Inflation Changes Your Day-to-Day

Let's Get Inflated.

There are a lot of headlines on skyrocketing inflation— and they all kind of make it sound like we're screwed... but are we? Let's unpack it.

People will tell you that inflation is confusing, but it’s really not. You know inflation better than you think because you’ve experienced it. Inflation is the name given to the condition when costs are higher for everything, and I mean everything. I’ve given this explanation before, but inflation explains why movie tickets were five bucks in the good ol’ days and they are fifteen now… not including popcorn.

If you know me, you’ll know that I talk about lattes a lot. I am the only financial expert that recommends that you keep that morning latte in your budget. But I’m going to stop myself there before I go on my financial indulgence rant and just say: you’re probably not going to be surprised to hear me bring lattes up here, but here I go. Tracking inflation is similar to making a cup of coffee. I know, I must be the most caffeinated writer out there, but stick with me.

The coffee grounds in the filter is the U.S. dollar. Inflation is the amount of water that runs through the filter. Your bank account is the cup of coffee.

If there’s less water, your coffee is going to be stronger. If there’s more water, you’re going to need more of the coffee grounds in order to achieve the same strong cup of Joe. If you don’t get more coffee grounds to counteract the increased amount of water, that’s when you get watered-down coffee.

Inflation isn’t always bad. Sometimes inflation doesn’t make that big of a difference in our financial lives. But it’s gotten a bad rap in recent years. Mostly because of the things that do not keep pace with inflation; for example, minimum wage rates and salary in general. In the United States, when an employee lands a raise, they normally experience a 3% increase of their salary. Guess how much inflation historically rises year over year? Yup. 3%. The reality is that the salary increase you’ll see at most jobs is not enough to keep pace with inflation. Especially if you’re working a job at the federal minimum wage rate, which has not kept pace with inflation since the 1960s.

So, inflation wouldn’t be such a problem if everyone got pay increases to keep pace with inflation, but unfortunately, that’s not a reality. I certainly don’t like weak coffee. But what I like even less is a watered-down net worth.

There are two ways to combat inflation: 1) spend less or 2) make more. Now might be a great time to talk to HR about a cost-of-living raise. Or, you can spend less. And that doesn’t mean cutting your spending plan, it may just mean getting more creative about stretching your money, and putting-off larger purchases until inflation takes a tumble.

xo,

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