HOW TO HANDLE INFLATION | Barbara Friedberg Personal Finance

My Inflation Panic During a Trip to Target

I made the deliberate decision to get a Target credit card because they automatically give you a 5% discount on everything you purchase in the store. Add that to the fact that I like the trendy Target merchandise and the grocery items. Sounds like a great plan, right? Target isn?t known as a high end retailer, so why did I have a panic upon visiting Target this week?

Prices are Skyrocketing on Many Consumer Products

I pride myself in being an economically savvy consumer. I know the shopping tricks;?buy in season fruits and veggies, check out the per unit cost, buy in bulk, shop with a list,?and avoid impulse purchases. But when I got to the bathroom cleaner and saw the $3.49 price on an item I am certain recently cost $2.50 recently, panic began to emerge. Then I went to the grocery section and couldn?t find a box of cereal for less than $4.00. Yikes, what happened to the $2.99 generic brands? And the price shock continued from section to section.

I am certain price inflation is here. I lived through periods last century of tremendous inflation and remember the effect. It?s like you are getting a salary cut.

Gas Prices and Inflation

As an economics major in college and a finance professional, I have my finger on the economic pulse of our country and the global marketplace as well. But you don?t even need to be very smart to figure out that goods are transported to their destination by air and land. And fuel powers the vehicles. With oil prices sky rocketing, it is virtually impossible to avoid inflation. One cannot expect the corporations to absorb the increased fuel and transportation costs. The consumer must pay more.

Add the rising oil prices to the certainty that during the next several years, interest rates will rise. Rising oil prices and interest rates will create a perfect climate for inflation to continue to rise. After all, when interest rates rise, it costs corporations more to borrow money to finance their operations. The increase in interest costs are subsequently passed on to the consumer in the form of higher prices.

Now that I?ve sufficiently shared my anxiety with you, let?s look at some coping strategies for dealing with inflation.

How to Handle the Coming Inflation

Fortunately, since inflation is a common occurrence, there are reliable coping strategies. Following are some of my inflation busting strategies,?for consumers and investors, as well as tips from across the web.

Shopping Tips

• The main premise of shopping in an inflationary environment is to buy in bulk when costs are reasonable.?
• Stock up on sale commodity items. With cotton prices sure to rise, clean out the Hanes aisle during their underwear sales.
• Paper towels, napkins, toilet products and other non-perishables are other products to?stock up on?when on sale.
• Don?t forget the towels and sheets during the annual January white sale.
• End of season shopping is a mecca of bargains.
• In the grocery, check out the tables of ?sale and near expiration date? items.
• Plan your meals and make a list. No impulse shopping.
• Consider joining a shopping club to save on those items you use most frequently. Make sure not to get distracted by impulse purchases of a 64 pack of skittles candy or other non essentials.
• Even if you are not a couponer, consider giving it a try. The savvy folks at Faith and Finance have a Coupon Ebook available for download. Living Well Spending Less also has a free PDF entitled Beginners Guide to Couponing.
• In How to Live With Inflation, Philip Brewer, Wise Bread writer, suggests bartering for goods and services to combat rising prices. There are also some nice investing tips in the article.
• Collaborative consumption is another take on the bartering concept. Great way to get what you need and share what you have.
• Substitute low cost foods for higher priced ones and use the internet to come up with recipes to fit the ingredients you have on hand. Plug a list of ingredients into the search, and see what comes up.
• Consignment, second hand shops, and garage sales, especially in fancy neighborhoods, are great for bargains.

Investing Tips

• Avoid buying bond funds now! With interest rates sure to rise, the principal value of the fund will decline as interest rates rise.
• Keep any bond purchases with short maturities, so when rates increase, you will be ready to participate in the higher yields that are certain to come.
• Maintain a diversified portfolio, as the future is uncertain. It won?t protect you from market declines, but with diversification, when one investment class falls, another may increase.
• When inflation increases, stock prices usually follow suit. Don?t be afraid to increase those contributions to your stock index mutual funds when you believe inflation is in the wind.
• Consider these investments backed by the US Government. These two investment vehicles are specifically designed to protect your capital when from the ravages of inflation; Treasury Inflation Protected Securities (TIPS) and Series I Government Bonds.

Now you are armed with actionable strategies to handle the coming inflation. Don?t panic, take charge and minimize the ravages of inflation.

What are your strategies for coping with inflation?

photo credit; photocentric

Source: http://barbarafriedbergpersonalfinance.com/how-handle-inflation/

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