Does life seem to be getting more expensive? When I first got married in 2000, I could go to the grocery store, buy a whole cart full of food, and spend only a hundred dollars. Now, I walk out of the store with just two bags for that same amount of money. This increase in prices is called inflation.
The annual inflation rate in the United States jumped to 6.8% in November 2021, the highest since 1982. How did this happen, why should we care, and what can we do to combat the rising cost of living?
I hate to break it to you, but one political party can’t blame the other for why we are seeing such a rise in inflation. Both sides are responsible. Remember those stimulus checks and the added unemployment benefits in 2020 and 2021? We received those payments because two major stimulus packages were signed into law. First, on March 27, 2020, President Donald Trump signed the 2.2 trillion dollar CARES act. The most expensive emergency package in history. Then on March 11, 2021, President Biden signed the 1.9 Trillion dollar American Rescue Plan.
Many people lost their jobs when the country went into lockdown due to the pandemic. So, the money the government issued was needed to pay bills. But I will never forget when we went to the mall a day after the second stimulus payment hit most American’s bank accounts. As I walked around the mall, I wondered why, if so many people were supposedly having such a hard time paying their bills, were the lines so long at the Gucci, Louis Vuitton, and every other designer store! I was kind of shocked, to be honest. I hadn’t been out of the house much during the pandemic, so seeing so many people out spending money made me realize that many people didn’t really “need” the government’s money.
But should we be upset that people were spending this money that the government gave them on luxuries? No. Even buying things they didn’t technically need still stimulated the economy. Heck, my family was at the mall letting our son spend however much he wanted of the money that the government sent for having a child at the LEGO store. I’m not here to judge anyone on how they spent that money. The ones who needed spent it on bills and the rest stimulated the economy. But, if you are like my family and put most of that money in savings, or better yet, invested the stimulus money, kudos to you. You are my people.
So if people are paying bills and stimulating the economy, then why is this bad, and how does this cause inflation. To simplify it, between those two stimulus packages, the government, in essence, printed 4 trillion dollars. 4,000,000,000,000! That’s a lot of zeros. And every time you add more dollars to the already existing dollars in circulation, it actually decreases the dollar’s value, reducing its buying power.
There is another factor to inflation. Also, due to the pandemic, the production of goods slowed. I’m sure we have all seen empty shelves at stores. So when production is low and people have more money to spend, manufacturers start to raise prices—good ol’ supply and demand.
So between the value of the all mighty dollar going down and the supply chain shortages, that is why we are seeing inflation.
If we focus on the things we cannot control, like inflation, that will only cause us undue stress and anxiety. So instead, let’s focus on what we can control to help mitigate the effects inflation will have on us.
First, we can look at what we are spending our money on. Are we buying needs or wants? Do we need a new pair of shoes or can we do with what we have? Can you cut back on eating out and other forms of entertainment? The one thing you do not want to do is go into debt or buy things on credit. It will only get harder to climb out of the debt hole as inflation continues to rise.
Second, ask for a raise. Most companies give a cost of living increase each year. We know that inflation is 6.8% as of right now. If they offer you anything less than that, you are actually getting a pay cut. Many companies are struggling financially due to the pandemic, so go to your boss prepared with facts as to why you should get a cost of living increase above the inflation rate.
Lastly, one positive to come out of this is that interest rates are at an all-time low. Unfortunately, they are beginning to rise slightly and will continue to rise over the coming year. But if you haven’t already, look into refinancing your home, car, or other loans. Please do your research first to make sure refinancing is a sound financial decision for you. This past year, my husband and I refinanced our home and reduced our monthly mortgage payment by several hundred dollars. Of course, we now use this money we are “saving” each month to buy investments, not things. But that’s a topic for a different day.
I hope this has helped you better understand what inflation is and why it’s here. But also gave you some ideas to help you not feel its effects too much. So share your thoughts in the comments with how you plan on combatting the effects of inflation. Let’s help each other keep our money in our pockets!!