Inflation impacts buying power

The Sting of Inflation 

Inflation: the cost of goods rises, resulting in a loss of purchasing power. When I was a young girl, a scoop of Baskin-Robbins ice cream cost .25 cents. Today, a quick Google search indicates a single scoop is $2.79! It is the same delicious mint chip ice cream, but the production cost has risen (ingredients, brick and mortar venue space, employees, etc.). My .25 doesn’t come close to providing me the purchasing power of yesteryear. This represents inflation.

Inflationary prices and the Consumer Price Index

According to the U.S. Bureau of Labor Statistics, “The Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services”(U.S. Bureau of Labor Statistics 2022). In addition, “The CPIs are based on prices of food, clothing, shelter, fuels, transportation, doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living”(U.S. BLS 2022). 

Consider that in 2021 the U.S. faced a 7 percent CPI increase. This represents, “the price of a base period market basket of goods and services rising from $100 to $107″(U.S. BLS 2022)). For example, at the beginning of 2021 specific items purchased at the store cost $100, but by December the same items cost $107! That’s a big jump.  

Does your current income offset inflation?

Due to Cost of Living Adjustments (COLA), those already receiving Social Security have seen a 5.9% increase in their benefits as of 2022(Social Security 2022). Did your employer automatically give you a COLA raise? In this workers-market-place, don’t be afraid to ask for a pay increase. Many employers will be willing to increase wages for valued employees. 

What if inflation stays high and how does this impact our daily lives?

With rising costs, critical financial decisions will have to be made on the household level. Simple fixes include opting to eat at home versus eating out on Friday date nights. Downsizing your living accommodations is a more extreme example that can be very unsettling. However, this is not the time to stop saving. Instead, keep investing for your future.  

Your lazy money and rising prices

Do you hold excessive amounts of cash? First, let’s define excessive cash holdings. It is imperative to have an emergency fund. An appropriate emergency fund generally represents between 3-6 months of liquid cash to cover necessary living expenses. However, holding too much cash or excessive cash holdings is dangerous. This represents lazy money that is not working for you. Lazy money will not keep up with the cost of living increase.

Investing, feel less fear when prices climb

Get the support you need to invest confidently. Do you worry you don’t have enough money to invest? Are you confused about how to get started? Is financial lingo hard to understand? Contact a Certified Financial Planner™ professional for fiduciary support. 

Yes, the market will swing both up and down. Everyone gets excited and wants to participate in the upmarket, but nobody wants to experience the downside. Are lower investment returns and a rise in prices on the horizon? During uncertain times, lean on your advisor for support. This personal client experience will help to reinforce your goals and encourage you to maintain what you value for your future.  

Plan for the “What ifs” in life

During the financial planning process, your advisor will help you set and prioritize goals. Equally important, they will show you the impact of “What ifs” on your plan. Examples of “What ifs” are the unexpected changes and transitions we all experience in life. What if inflation continues to outpace my income? What if I experience a career move, divorce, or the death of a key family member? As a result, having a financial plan in place prepares investors so they are not blindsided by the unknown.

You don’t have to navigate your finances alone

Contact Imagine Financial Services. Learn about the services provided and associated costs. 

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References

Social Security. SSA. (n.d.). Retrieved January 25, 2022, from https://www.ssa.gov/cola/ 

U.S. Bureau of Labor Statistics. (2022, January 12). U.S. Bureau of Labor Statistics. U.S. Bureau of Labor Statistics, CONSUMER PRICE INDEX – DECEMBER 2021. Retrieved January 25, 2022, from https://www.bls.gov/