The current inflation rate is the highest it has been in decades. As of January 2022, the U.S Department of Labor announced that the Consumer Price Index rose to a whopping 7.5%. This update might not interest you until you learn what this means for your personal finances.
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How does this inflation rate impact you financially?
The country is currently dealing with record-high gas prices because of the rate of inflation. The average price of gas at this time is $4.32 per gallon, making filling up your vehicle’s tank a major expense. High gas prices could put a strain on the finances of anyone that needs todrive long distances on a regular basis.
The prices for food items have risen across the board. Everything from bread to bacon costs more this year. The climbing costs are partially due togrocery supply chain problems like shipping delays and labor shortages.
Energy bills are also jumping up in cost. In recent months, consumers have paid more for natural gas, fuel oil and electricity. It doesn’t seem like those energy costs will trend downward in the near future.
The Federal Reserve is planning to raise interest rates in order to curb the record-breaking inflation rate. They recently raised interest rates for the first time since 2018,and they intend to make more rate hikes throughout the year. These hikes will affect the borrowing costs of credit cards and loans, including car loans and mortgages.
Why Is This Important?
Not paying attention to the rate of inflation can force you to make big budgeting mistakes. If you’re not careful, you could easily spend more than you intend to on essentials and drain your checking account before your next paycheck comes in. And, even if you manage to keep your account out of the red and avoid collecting any penalties, you can still find yourself in a financially vulnerable position where you can’t handle an extra expense—this could be a serious issue if you’re hit with an emergency expense that you can’t set aside for later.
What can you do with an emergency expense? If you have an emergency fund, you should withdraw the necessary savings from it to pay off the expense as soon as possible. If you don’t have an emergency fund, or you don’t have enough savings in the fund, you could use a personal line of credit for help.
What’s a personal line of credit? A personal line of credit is a borrowing option that allows you to access credit when you need it most — like when you’re in the middle of an emergency. As long as you have enough credit available and your account is in good standing, you can request a withdrawal within your limit. If that’s approved, you can use the borrowed funds to manage an expense quickly. It’s simple.
What Can You Do?
Adjust your budget to match these changes in prices. If these adjustments make your budget too tight for comfort, you should take the initiative to reduce some variable expenses like streaming services, takeout orders and hobby spending. This will make it easier to prioritize your essentials that are affected by inflation.
If you feel comfortable doing so, you could ask for a raise from your employer. When calculating the raise that you want, you should aspire to make at least 7.5% more than your current salary — this will help you keep up with inflation.
Inflation is going to hit your wallet whether you’re ready or not. Prepare for the price hikes before it’s too late.
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