Is Your Budget Feeling the Burn? Here Are 6 Ways Inflation Is Affecting Your Money.


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Do you feel like you’re running out of money right now? It is likely due to inflation, which is affecting your money in a number of ways.


Key points

  • In mid-June, the inflation rate rose 8.3% year-on-year and is having a significant impact on most people’s finances.
  • The cost of food, from fruits and vegetables to dairy products, has risen by more than 11%, which may be reducing your food budget.
  • Your savings rates, borrowing power, and the value of your money may also be burning.

Over the past six months, talks have shifted from the unstoppable real estate market to how inflation is affecting the economy, and for good reason. In mid-June, the US inflation rate UU. it had grown by 8.3% compared to the previous year, which is a big leap compared to what we have seen in previous years. For its part, the prices of everything you buy and the utilities you pay for have gone through the roof.

That alone is affecting a lot of people’s finances. But while inflation makes everything we buy priced higher, it’s not the only effect it’s having on your budget. Inflation is affecting your money in more ways than you can imagine. If you’re wondering why your bank account balances haven’t gone that far recently, here are six ways inflation is affecting your money.

1. Your food budget is being busted

Right now, essential products cost a lot more than before, and they are likely to have a big impact on your budget. Although supply chain problems have played a role in increasing the costs of this type of essential commodity, much of it can be attributed to inflation.

According to recent data from the BLS, the cost of food at home – items such as fruits and vegetables, meat, dairy and other groceries – has increased by 11.9% compared to last year. What this means is that millions of Americans are feeling the burn as they fill their grocery cart. Your grocery budget isn’t so extensive, and you may even be dipping into other parts of your budget to fill your pantry.

But not only food is more expensive compared to last year. If you occasionally order food out of the house, either in restaurants or takeaways, you’re paying 7.4% more on average compared to 2021. That’s the highest jump we’ve seen since 1981, when food prices went out. . increased by 9% year-on-year.

2. Traveling to work is running out of funds

We all see what’s going on with fuel prices. As of June 15, a gallon of gasoline was floating at an average price of $ 5.01, according to AAA. An average of a gallon of gasoline was $ 3.07 just a year ago.

So if you’re commuting to work or driving for other reasons, that extra $ 2 per gallon at the pump is likely to put even more pressure on your budget.

3. The interest on your savings cannot continue

Historically, the average interest rate on savings accounts has been quite low. If you are looking to make money with your money, a savings account is usually not the best way to do it. These days, however, the interest you earn on your savings money is basically negligible thanks to inflation.

In mid-May, the average savings account rate was 0.07%, which would amount to about $ 3.50 a year in interest payments if your savings account had $ 5,000. While some banks, especially online banks, may offer slightly higher rates, it’s not worth writing.

But the inflation rate is around 8% right now, which means your money is worth 8% less than it would otherwise be. What this means is that the interest on your savings cannot offset the depreciation, even if you get a higher than average rate.

4. Your investments may pay off

If you have money hidden in certain types of investments, you may not see that they work as you expected right now. Although the impact of inflation on investment varies, assets such as regular bonds and certificates of deposit (CDs) are at risk of underperforming due to inflation.

This is because you earn money from these investments through interest payments, which remain the same throughout the term of the contract. Therefore, if your money is tied to this type of investment, the returns may not be doing much to offset the losses due to inflation.

5. The value of your money is declining

Uncontrolled inflation is hard on your finances because it can reduce the value of your money over time, and it does. The rate of inflation we are currently seeing is causing consumer goods prices to skyrocket. For your part, your money is not spreading so much now and it is not worth so much in the long run.

For example, let’s say you put $ 2,000 in your sock drawer for a rainy day. If you take that money out of the drawer to spend it in five or 10 years, you probably won’t be able to buy with it as much as you might still have today, despite the higher prices we face due to inflation. .

Technically you are not losing any of the money you have saved. Everything is still available to you, but its purchasing power is still much weaker than it was before.

6. Your borrowing power may be reduced

Although declining borrowing power is not a direct result of inflation, it often occurs in conjunction with higher inflation rates. This is because when inflation levels are high, the Federal Reserve typically raises the rate of federal funds to try to slow the economy, which in turn affects consumer interest rates.

That has already been done three times this year, largely to try to stop rising inflation. And while rising interest rates have helped slow down mortgage lending, it has also made it difficult for borrowers to pay interest on large loans for high-value items.

When you can’t pay the higher interest on a car or home purchase, your purchasing power is reduced. In turn, that could mean the difference between making your big purchase and waiting for rates to go down again.

If you’ve noticed that your money isn’t stretching so much lately, there are ways to help you fight these kinds of problems. While you can’t do much with the higher price of housing or food, you can make changes in other ways.

If you are dealing with low savings rates, it can be helpful to look for new savings accounts and online banking can be a good place to start. It can also be helpful to buy if you are borrowing money for a large purchase or a high priced item. Rates can vary significantly from one lender to another, so if you’re not buying, you can further reduce your borrowing power with higher than average interest rates.

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