Inflation isn’t going anywhere. Which price increases really hurt you most?

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The US Bureau of Labor Statistics (BLS) tracks thousands of prices and folds them all into a weighted average they call the consumer price index, or CPI.

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Last year, I wrote how the CPI’s year-over-year increase was 5.0%, which followed a string of gradually growing 12-month readings, from 1.4% in January, to 1.7% in February, to 2.6% in March, to 4.2% in April, to 5.0% in May.

It’s only gotten worse since then. Here’s what you need to know about inflation and how it impacts your bottom line.

What’s Likely to Hurt Your Wallet Most?

Depending on what you tend to buy, whether routinely or in the next few months, here are the categories that could make you wish for last year’s prices.

1. Used Cars and Trucks

While new cars and trucks ticked up a healthy 5.3%, the worldwide shortage in chips made those harder to find. As a result, consumers turned to the used vehicle market, pushing prices there up by an astounding 45.2%. As a result, many of those 2-to-3-year-old vehicles now sell for about 95% of what they cost when they were new!

2. Car and Truck Rentals

The COVID-19 pandemic gutted the travel industry. One of the worst-hit were auto rental companies. With few people traveling, and many of those using their own vehicles to go on road trips, demand for rental cars and trucks plummeted.

To survive, these companies sold off massive chunks of their fleets, and delayed buying new vehicles.

Now that the economy is emerging from the pandemic’s effects, and leisure travel is rebounding nicely due to people’s pent-up urge to vacation away from home, demand for rental vehicles has shot up. Unfortunately, the above-mentioned chip shortage made new cars and trucks hard to come by, so rental fleets can’t be quickly scaled back up.

Economics 101: When demand shoots up and supply can’t keep up, what do prices do? They soar, until those the increased cost restrains demand to the point that it can be met by existing supply.

In this case, prices shot up an eye-popping 87.7% (year-over-year from June 2020 to June 2021)!

3. Airfares, Public Transportation, and Other Intercity Transportation

With more people vaccinated and willing to sit on an airplane with 100+ strangers for hours and hours, airlines were able to increase their prices 24.6%, in many cases to above pre-COVID prices.

Similarly, public transportation fares jumped 17.3%, and other intercity transportation 13.3%. Overall, transportation services are up double digits at 10.4%.

4. Fuel

The most common auto fuel, regular unleaded, jumped by 46.4% relative to June 2020.

Other grades also went up, though not quite as far. Midgrade unleaded is 40.1% more expensive now, while premium unleaded increased by a smaller yet still very high 36.8%.

Fuel oil went up by a similar 44.5%, so if that’s what heats your home, you’re probably praying for a mild winter (and likely for increased supply to reduce prices before the next cold snap).

Propane, kerosene and firewood also went up by a smaller yet still hefty 17.7%. Overall, the cost of energy commodities is up 44.2%.

5. Energy Services

Energy services, i.e., delivery of energy to your home, went up 6.3%. This is an average between electricity services that increase only 3.8% vs. utility (piped) gas services that increased by 15.6%.

6. Lodging Away from Home

The same urge to go on vacation is helping the hospitality industry. Prices for hotel/motel rooms and other lodging away from home are up 16.9%.

7. Homes

The BLS doesn’t directly track the real estate market, explaining that buying homes is a capital expenditure rather than consumption:

Housing units are not in the CPI market basket. Like most other economic series, the CPI views housing units as capital (or investment) goods and not as consumption items. Spending to purchase and improve houses and other housing units is investment and not consumption. Shelter, the service the housing units provide, is the relevant consumption item for the CPI. The cost of shelter for renter-occupied housing is rent. For an owner-occupied unit, the cost of shelter is the implicit rent that owner occupants would have to pay if they were renting their homes.

This “owner’s equivalent rent of primary residence” is up by just 2.3%.

I’m no economist, and I can’t argue they’re wrong.

However, if you’re in the market for a home, you’re probably seeing prices up by 20% or more compared to last year, depending on where you are and what sort of home you’re looking for. They may not call it consumption, but it certainly hurts your wallet!

What You Can Do About It (and the Limits of That)

Paying these higher prices is unavoidable in many cases. For example, cutting your home heating and cooling bills is doable to an extent, but even limited saving isn’t easy.

If you need to buy a home, you might feel tempted to hold off until the current seller’s market madness dissipates. Unfortunately, there’s no assurance prices will drop back down. They may simply stabilize at even higher levels than today’s.

When I bought my first home, I paid double what the seller had paid a couple of years earlier, and he paid double what the previous owner paid a few years prior to that. Then, five years later, I sold it for double what I paid. All told, housing in that town went up 8-fold in about 10 years.

When the 2008 market crash came, prices slumped by about 20% but recovered within a few years after that, and they are currently 20% higher than pre-crash.

You have more options when it comes to travel and vacations.

You can visit less expensive destinations, preferably ones you can easily reach by car. While gas is up much more than airfares, if it went up from $100 to $146, that’s still just $46 more for potentially a family to get where you’re going.

This is negligible compared to say paying $1500 instead of $1200 for several air tickets. You’d also be saving yourself the grief of paying nearly double for a rental car.

You can also cut your stay a bit shorter to reduce lodging costs, though if you can afford the extra say $100 for a week’s stay at a hotel rather than cutting your vacation a day shorter, after being shut in at home for 15 months due to the pandemic, I’d count that as a win.

Finally, if you’re in the market for a car, I’ve always said that buying new makes more sense than buying used. Back in March, I used data to prove that this is true for buying a car even at 1, 2, 3, 4, or 5 years old. Now, with used car prices up more than 45%, buying new makes more sense than ever, assuming you can find in stock a car that’s close enough to what you’re looking for.

The Bottom Line

Inflation is higher than it’s been in decades, and it seems to just keep going up. The Fed insists (hopes?) this is a temporary situation, and that prices will go back to the much more sedate inflation we’ve experienced for 20+ years.

Even if it is, nobody expects prices to drop back down. In fact, they may continue to soar for months or even a year or more.

This is really bad news for most consumers, especially those on fixed income … and most especially those whose income doesn’t benefit from any cost-of-living adjustments (COLAs).

If you are paying (or shopping) for any of the following, you’re probably feeling the pinch even more:

  • Used cars
  • Rental vehicles
  • Airfare, public transportation, and other intercity transportation
  • Gas
  • Fuel oil, propane, kerosene, and firewood
  • Energy services (i.e., delivery of energy)
  • Hotel rooms
  • A home

Prices for these have gone up faster than most categories, anywhere from high single digits to nearly double since last June.

All in all, paying attention to prices will let you pick and choose where you can and should economize, what purchases you may want to delay, and which ones you may decide to hurry up with, before prices shoot up even higher.

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How to recognize & avoid ‘lifestyle creep’

How to recognize & avoid ‘lifestyle creep’

Lifestyle creep occurs when your standard of living starts to outpace your actual income. It’s generally related to making more without saving more — foregoing important financial goals, like establishing a proper emergency fund or saving for retirement, in lieu of buying a larger house, nicer car or luxury vacation.  

While it’s tempting to start spending any extra money you earn as soon as you, well, earn it, lifestyle creep can expose you and your family to a certain amount of financial risk. After all, there’s no guarantee that you’ll stay at a given income level. 

To prevent you from falling prey to lifestyle creep, also known as lifestyle inflation, we consulted Certified Financial Planners, financial advisers and other personal finance experts. Here are 38 ways to avoid lifestyle creep. 

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Keep your standard of living as low as possible for as long as possible, particularly if you’re a recent graduate, says Danielle R. Harrison, a Certified Financial Planner at Harrison Financial Planning in Columbia, Missouri. 

“Rather than buying a brand new car, cell phone, or apartment, take that extra money and aggressively pay down your student loans or put away as much as you can for both your short- and long-term goals,” Harrison suggests. “If you’ve never experienced the money, it is much easier to not know what you are missing.”

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“How can you track your spending if you have no idea where it’s going in the first place?” says savings expert Andrea Woroch. “A budget tells your money where to go and keeps you from wasting it on things that don’t matter.” 

“Savings” is an essential line item of every budget. Pay yourself first before allocating or upping your discretionary spending. 

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There are varying opinions on how much of your total income should go toward savings and retirement goals each month. Moreover, the answer is likely to vary, depending on your full financial profile.

But if you’re looking for some base guidelines, consider applying the 50/30/20 rule, a budgeting method that allocates 50% of your income to essentials, like rent and bills, 30% to discretionary spending and 20% to savings.

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“If you keep a low balance in your checking account, you’re less tempted to feel like you have money to spend,” says Shang Saavedra, personal finance blogger at SaveMyCents.com.

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Set up direct deposit to ensure your access to excess funds is minimal. 

“For many of us, we view funds as available to spend the moment they hit our bank account,” says Nicole Gopoian Wirick, a Certified Financial Planner based in Birmingham, Mississippi. “To avoid this, I encourage clients to implement a direct savings plan where money automatically transfers from their bank account to a savings and investment account.”

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Americans are allowed to put a certain amount of money each year into designated retirement accounts, like 401(k)s, individual retirement accounts (IRAs) or Health Savings Accounts (HSAs). For instance, in 2021, employees can contribute up to $19,500 to their 401(k) plan

If you aim to hit these limits each year, you can establish a robust nest egg for retirement while keeping lifestyle creep at bay. At the very least, you can …. 

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“Many employers are also now offering automated 401(k) deferral increases that will increase the amount you contribute to your employer-sponsored retirement plan by a certain percentage annually,” Harrison says. “Some even coincide the timing with annual merit increases or bonuses.”

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When receiving a raise or bonus, make sure you have a firm understanding of how much more income you’ll net after taxes before changing your spending habits. 

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“Use the increase to pay down debt or increase your savings,” Harrison says. “Then any extra can be used to increase your standard of living.”

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Monthly commitments can be deceiving.

For instance, “buying a car with a $400 monthly payment vs. one with a $250 monthly payment is only $150 more per month, but a significant $1800 extra per year,” says David J. Haas, a Certified Financial Planner with Cereus Financial Advisors in Franklin Lakes, New Jersey. “I recommend keeping both a monthly and an annual budget and look at any new monetary commitments through the lens of both budgets.”

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A budget is only helpful if you actually use it. Use a budgeting app or a simple spreadsheet to monitor your spending each month. 

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Many banks, credit card issuers and budgeting apps will send you notification via text, email or push alert when a large transaction hits your checking account. These notifications can serve as a deterrent for large purchases — and also keep you abreast of how much money may be available in an account at any given time. 

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As we alluded to earlier, seemingly small monthly purchases can add up over time. Review bank and credit card statements for “zombie charges” — recurring subscriptions, renewals or fees for goods or services that you’re no longer using or don’t really need.

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“Re-evaluate every year whether or not you’re saving enough,” says Rick McCallister, a Certified Financial Planner based in Torrance, California. “Adjust as necessary.”

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“Instead of living a life that is ‘expected’ of us from our friends and from media, design a life that goes along with your values,” says Saavedra. “I don’t need to have a fancy car if I don’t want one. I don’t have to have a big house if I don’t want one.”

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“For a lot of people, Covid-19 has led to lower expenses in certain areas,” says Jason L. Williams, a Certified Financial Planner based in McLean, Virginia. “I’d suggest that people really think about the amount of joy that spending brings before just simply adding it back without any reflection once they are able to do so.”

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Otherwise, you’re more prone to popular spending traps as your income increases.

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“Review your goals and make sure that you are on track for living the future life you want,” says Molly Ford-Coates, founder and CEO of Ford Financial Management. “Having your goals front and center reminds you what you are working for.”

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A financial adviser or certified financial planner can help you set up more sophisticated savings strategies if you have a complex account or need more assistance.

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“Having someone to hold you accountable for your financial decisions can be an excellent method to avoid lifestyle creep,” says Forrest McCall, owner of personal finance site Don’t Work Another Day. 

Check in with this person regularly to make sure you’re not straying too far from financial goals.

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“To set up my clients to succeed, I have them set up two different checking accounts,” says Stephanie Trexler, a Certified Financial Planner, CEO and Financial Advisor of Golden Goose Wealth Planning in Grand Rapids, Michigan. “The first is for bills, which are set up on auto pay each month. The other is for everything else, including fun spending money.”

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Absent other savings goals, experts generally recommend having enough money to cover three-to-six months’ worth of expenses set aside in a designated savings account. Bonus tip: Maximize these funds by looking for an account that offers a competitive annual percentage yield (APY). 

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“Don’t carry balances,” Avani Ramnani, a Certified Financial Planner with Francis Financial, says. “This will ensure that you spend only what is in your bank account.”

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If you start over-charging, “cut-up your credit cards and go purely to using cash or a debit card,” Ramnani says. “This will automatically restrict your spending to what is in your bank.”

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Resist the urge to “move up” unless a larger home is absolutely necessary.

“If the smaller house continues to fit your needs, you could be saving thousands of dollars in moving and closing costs and even more with the reduced costs associated with your ‘starter’ home, relative to a more expensive house,” says Joyce Streithorst, a Certified Financial Planner based in Melville, New York.

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If you’re looking for guidance on how much to spend on a home, the government has described homeowners who spend 30% or more of their income on housing as “cost-burdened” or “house-poor”. 

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It’s better to live below your means than above it, so think twice before taking out a loan or making any purchase that is going to put you in the red.

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If you’re already in debt, prioritize payoffs over spending. There are a variety of strategies you could utilize — we’ve rounded up 50 of them right here.  

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A good credit score helps you qualify for the best deals on credit cards, mortgages and other loans — leaving more money for saving and responsible spending.

You can maintain good credit by making on-time payments, keeping credit card balances low and limiting the number of new credit applications at any given time. Learn more about credit scores

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“When we bombard ourselves with images of others ‘best’ lives it is hard to not yearn for more. Spend time finding what is most important to you,” Harrison says. “Because of the hedonic treadmill, spending more on consumer products doesn’t make us happier in the long-run.”

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“Just because you have more money to spend doesn’t mean you should waste it because you don’t feel like looking around for savings,” Woroch says.

There are plenty of savings tools, browsers and sites that can help you quickly comparison-shop and find discounts. Check out this guide for 50 ways to save more.

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For “some of my favorite luxury items, I shop thrift stores or online platforms like Poshmark and Ebay,” Saavedra says. “I always tell myself ‘once you use a new item once, it is used.’ So there is very little difference to me in buying used vs. buying new, other than the savings.” 

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Resist the urge to spend all of your tax refunds, annual bonuses or other windfalls on pricey wants as opposed to needs. However … 

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“Avoiding lifestyle creep can be similar to straying from a healthy diet,” says Scott A. Bishop, a Certified Financial Planner based in Houston. “Most don’t do well on restrictive diets as they also do not do well with restrictive (seemingly punitive) budgeting. If you are having financial success, enjoy some of your successes, but pay yourself first.”

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Control splurges by setting up an account for them specifically. Joseph R. Stemmle, a Certified Financial Planner based in Richmond, Virginia, keeps a “treat yourself” account, inspired by Amy Poehler sitcom “Parks and Recreation.” 

“If I do want to treat myself or splurge on something, I know I have money set aside that won’t impact my overall budget,” he says. 

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“Focus on creating experiences and quality time together with family and friends, as opposed to buying,” says Marguerita M. Cheng, a Certified Financial Planner based in Potomac, Maryland.

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If you find yourself yearning for more, you can consider new ways to generate more income to put toward spending or savings. Here are 49 side hustles to consider.  


This article was produced and syndicated by MediaFeed.org.

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