The higher prices go, the more creative you need to become
Canada’s inflation rate is the highest it has been in 31 years at almost 8%. Gas prices have nearly doubled in the last year. Inflation has also hit chicken, bread, meat and all the other things immigrants love.
While consumers can’t control an increase in prices, there are some things they can do—or not do—to fight inflation and reduce the impact on their wallets, their budgets and even their investments. Here are 11 great tips on weathering the current inflation.
- Know your inflation rate
Where you’re spending your money can tell you a lot about how you’re actually being impacted by inflation—and where you should focus on cutting back. To that end, it’s important to understand how inflation is measured.
Take note of the goods most sensitive to inflation. Understanding where inflation is likely to impact you less is important, especially if the effects are relatively temporary.
- Be aware of packaging tricks- “shrinkflation”
Some producers play a special packaging trick in times of inflation. It’s called shrinkflation.
Product companies will slowly “shrink” the contents of the packages and goods you buy while charging you the same price. This means a price hike for you. The package of strawberries now has five fewer strawberries. The bag of chips has more air and less chips than usual. The roll of toilet paper could go from 264 sheets to 244 sheets.
One way to deal with shrinkflation is to try to stick with generic store brands because those tend to be the last to shrink. Additionally, pay attention to the unit price of what you are buying. Brands don’t usually downsize all of their items simultaneously, and typically the largest ones are downsized last. In some cases, whole foods may be less susceptible to shrinkage than packaged foods. It also helps to only buy fruits and vegetables that are in season.
- Delay cashing out your RRSP
For individuals who have other funds to support their retirement lifestyle, putting off collecting your RRSP can be a smart inflation hedge.
When you retire, one of your options is to convert your registered retirement savings plan (RRSP) to a registered retirement income fund (RRIF).
You can delay converting your RRSP and withdrawing money for a few years if you have other income or assets to fund the early years of retirement. The advantage is that retirement savings will have longer to grow while sheltered from tax.
- Seek a higher return on happiness
When prices start soaring, take a moment and think about what you’re spending money on and why. And then stop spending money on the unnecessary things that don’t bring you joy. After all, if you stop spending money on something, by definition, you are no longer impacted by inflation in that area.
You should consciously increase the “return on happiness” of each dollar you choose to spend during these inflationary times.
- Invest in yourself
By far the best investment you can make to deal with inflation and be prepared for an uncertain financial future is an investment in yourself. One that will increase your future earning power.
This investment begins with quality education and continues with keeping skills up-to-date and learning new skills that will match future trends.
- Update your résumé
This might sound strange, but it’s useful. Given the tight job market, there’s an opportunity for many employees to find new positions that will pay them more—and a higher salary is obviously a benefit in an inflationary environment.
Given the state of the labor market—this time in favor of workers—summon up courage and go ask for the raise. You need it.
- Time your expected purchases
Consumers are often advised to have cash and other liquidity available for unexpected expenses, such as house or car repairs or even medical bills. But there is another use for that cash on hand: making expected purchases on sale and ahead of time. While this only works for nonperishables, there is real value to be reaped by buying goods when the price is right and in quantities that make sense.
Buy back-to-school supplies on sale, instead of waiting for the fall when goods could be limited and prices higher. By shopping strategically and optimally managing their inventories, households can potentially earn returns well above 20%.
- Buy stocks
Buying stocks is one of the best ways to combat inflation. A big reason stocks beat inflation over time is that corporate earnings and dividends tend to grow faster than inflation. It’s true that stocks have historically experienced below-average returns during periods of higher inflation, but, ultimately, corporations pass on higher prices (wages and input costs) to consumers, which, in turn, boost revenue and earnings in the long run.
- Control your lifestyle creep
Inflation can be an opportunity to try to cut down on lifestyle creep. One way households can do this is to keep their budget flat despite rising costs.
A good place to start this budgeting process is to simply pull all of one’s bank account, credit-card and debit-card statements and look for any recurring expenses for subscriptions or services that may no longer be needed. Tallying up spending totals in various categories can also be insightful to get an understanding of where one might be overspending.
- Account for shadow inflation
With the cost of goods rising rapidly, along with the current labor shortage, many of the services we have grown accustomed to getting for free, are no longer included without an extra fee.
This is part of something called shadow inflation. And because you are getting less return for your money, the erosion to your dollar may be more severe than you realize. Shadow inflation may not be as obvious as the skyrocketing costs of gasoline or cars, but consumers need to be aware of its effects, and adjust their expectations and budgets accordingly.
- Negotiate lower prices on everyday expenses
To counteract higher prices, you can negotiate a better deal on almost anything.
Streaming services, insurance premiums, cable bills, cell phone plans and gym memberships — especially now — are classic examples of recurring costs that are often negotiable. There is no harm in asking.