Maybe you’ve felt it at the grocery store or noticed it on your restaurant bill. Prices are climbing as inflation hits 7.5% this year — its highest rate since 1982.
It’s a big hike from 2020, when inflation was at just 1.4%. We’ve been expecting an increase in prices as pandemic restrictions continue to ease and people start getting out and spending more. The Federal Reserve, which uses interest rates to help control inflation, has already planned three or four potential interest rate hikes this year to slow things down. In the meantime, we’re already feeling the squeeze.
But don’t worry. OCCU has tools to help you relieve some of the pressure. Here's what you need to know about inflation and how to limit its impact on your money.
How inflation affects your budget
Inflation means the dollars you have today will buy less tomorrow. As consumers, we’re used to prices rising over time — but it’s usually so gradual we don’t notice it much from year to year.
When the balance between supply and demand gets disrupted, however, it can cause inflation to spike. Food and energy costs are fueling the current wave of inflation, as well as labor shortages and global supply chain issues related to the pandemic.
The most obvious and immediate result is the strain on your budget. When you’re spending more on essentials such as food and electricity, your money doesn’t stretch as far. In other words, you have less purchasing power. Food prices alone rose 7.4% this year compared to last year. Meat, poultry, fish and eggs had the biggest increase at 12.2%. Gas prices, meanwhile, climbed 40% while electricity went up 10.7%. The increases have spurred many households to tighten up their budgets.
But your budget isn’t the only thing that’s vulnerable to inflation. You should also be thinking about your savings. Inflation erodes your savings over time, eating away at your future purchasing power. One way to counteract this effect is to keep your money growing as much as possible. You may not be able to outpace the current inflation rate, but you can help close the distance. That’s why it’s important to save as well as consider investing; with compound interest and a higher potential rate of return, investing can help protect your savings against inflation.
4 ways to push back against inflation
Whether or not investing is an option for you right now, there are plenty of steps you can take to limit the impact on your finances. Here are four ways OCCU can help:
1. Earn more interest on your savings
If you’ve had your money parked in the same checking or savings account for a while, you’re probably not earning as much interest as you could be. You might be better off moving your nest egg to an Ignite Savings account, which earns 5.25% annual percentage yield (APY)* on the first $500 you deposit and a competitive rate on the rest. You can even earn interest on your checking account balance with our Remarkable Checking account or consider opening a certificate of deposit (CD).
2. Tighten up your budget
The more insight you have into where your money’s going, the better. That’s especially true when you’re looking for places to trim. If you’re not already using the Financial Wellness tool on your MyOCCU Online & Mobile account, now is a great time to get started. Financial Wellness automatically sorts your purchases into spending categories, such as food and utilities, so you can see at-a-glance how your spending compares with your budget goals.
3. Lower the interest rate on your debt
Could the interest rate on your mortgage, car loan or credit card debt be lower? Even a small difference in percentage can add up to significant savings over time. As a not-for-profit credit union, we offer competitive interest rates on all our credit cards and loans. Compare our rates on credit cards, home loans, vehicle loans and personal loans against what you’re paying now. If you can benefit from a debt transfer, it’s better to do it now before interest rates increase again.
4. Map out a money plan
Regardless of your income level or the current state of your checking account, having a plan for your money can help keep you on track and make progress towards your goals. It’s even more important during a period of high inflation, when rising prices can hinder your plans. You can create a money plan on your own or connect with our team. We’re ready to help give guidance.
Each of the steps above may not be enough to counteract inflation on its own. If you add them together they can help you weather the current price increases while protecting your long-term financial wellness.
*5.25% APY on balances up to $500, 5.25%-3.45% APY on balances $500.01-$2,500, 3.45%-2.23% APY on balances $2,500.01-$5,000, 2.23%-0.85% APY on balances $5,000.01-$25,000, and 0.85%-0.15% APY on balances of more than $25,000.01.