Inflation is currently at a high and has not shown signs of going down since 2021. But what is inflation exactly? How can you navigate it, while also accommodating your lifestyle or needs?
Economic inflation is defined as an increase in the general price of goods and services. When the prices of goods and services rise, currency buys less. It is ultimately a reduction in the purchasing power of money. The most common measure of inflation is the Consumer Price Index (CPI), which measures the average change in prices paid by consumers over time.
There are two main causes for inflation. Demand-pull-driven inflation occurs when the demand for a product or service drives prices up. Cost-push-driven inflation occurs when the cost of supplies causes prices to increase.
You may have noticed the increased prices at the grocery store or the fact that some items you regularly buy are now at a higher cost than ever before. These are daily examples of inflation, and many people are feeling the pressure on their bank account. Not only are prices rising, but in some instances, incomes remain the same.
Create a budget and start looking at your bottom line. What do you need to survive today? Survival is a roof over your head, transportation, and food. These should always be the priority in your budget and what you allocate your money to first.
Finding ways to save on small things can add up, and there are expenses you might be able to cut out entirely. Some things to examine include:
What you spend $1 on today is not the same as it was years or even months ago. Being thoughtful about how you spend is the first step in helping to protect your finances from the cycle of inflation.
Understanding Inflation
Economic inflation is defined as an increase in the general price of goods and services. When the prices of goods and services rise, currency buys less. It is ultimately a reduction in the purchasing power of money. The most common measure of inflation is the Consumer Price Index (CPI), which measures the average change in prices paid by consumers over time.
Causes of Inflation
There are two main causes for inflation. Demand-pull-driven inflation occurs when the demand for a product or service drives prices up. Cost-push-driven inflation occurs when the cost of supplies causes prices to increase.
How Inflation Affects You
You may have noticed the increased prices at the grocery store or the fact that some items you regularly buy are now at a higher cost than ever before. These are daily examples of inflation, and many people are feeling the pressure on their bank account. Not only are prices rising, but in some instances, incomes remain the same.
What Can You Do?
Create a budget and start looking at your bottom line. What do you need to survive today? Survival is a roof over your head, transportation, and food. These should always be the priority in your budget and what you allocate your money to first. Finding ways to save on small things can add up, and there are expenses you might be able to cut out entirely. Some things to examine include:
- Lowering your grocery bill.
- Let Michigan First Insurance Agency shop around for the best rates.
- Make your home more energy-efficient.
- Get rid of unnecessary subscriptions or expenses.
What you spend $1 on today is not the same as it was years or even months ago. Being thoughtful about how you spend is the first step in helping to protect your finances from the cycle of inflation.