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How I'm beating inflation this year (and you can, too!)

The focus of Next Level Money is on investing and helping you grow your net worth to the next level through investing. But sometime we need to go back to the basics of personal finance. And one of those building blocks is saving. Particularly by spending less than you earn. In a world of 8.6% inflation, the economy is making it harder to save compared to a year ago. I started cutting back on spending in some areas like food back in January of this year after being shocked by the increase of food items at my local grocery store. It was convenient because it is only 0.6 miles away from home and on the way back from my office. But I decided to start shopping elsewhere for the bulk of my groceries in order to save more money. And I've been successful at cutting back here and other categories, too. I recently did an analysis of my spending trends on mint.com (which I've been using for 10+ years and definitely recommend using). I looked at my personal spending YTD and then compared that to the same time period in 2021. Guess what - despite inflation coming in at hot 8.6%, my overall spending during that time was down 6.7%. And that's with a 10% increase in rent this year, too!


I believe it's okay (and probably a wise thing) to have some splurge categories in your budget. The areas where spending offers massive value to you personally. Everyone has their preferences for what they like and are willing to spend extra on (for example, one such category for me is cars). However, there are other areas where I am extremely frugal in - for instance since the pandemic started, I've been cutting my own hair and saving ~$20 a month from not going to a barber shop. I also enjoy cooking and don't go out to restaurants very often. so that's another DIY method to cut costs. Basically, it's okay to splurge a bit in areas that offer you lots of value as long as you can A) afford it and B) cut back in other areas that don't matter as much to you. It all about prioritizing and then matching your spending to reflect your priorities.


For a typical person in a high inflation environment, it's hard to feel like you are getting ahead. Average real wages per hour are down 3%. So despite nominal wage growth being strong and unemployment being low, it probably doesn't feel like you're doing better now financially compared to a year ago unless you are upper-middle class and above. And despite household cash levels being up in the wake of the pandemic (people are FINALLY listening to common financial advise of having 3 to 6 months of cash for an emergency fund), over 60% of Americans live paycheck to paycheck. And if expenses are rising faster than incomes, that's not a good sign. I've cut back where I can in my budget, but if everyone cuts back too, economic activity will falter and a recession could be around the corner.


In a previous post "Watch out for the next recession" I said "I would say there’s a ~70% chance a recession starts by the end of 2023. But it could happen sooner." Now I'm upping the odds to 95% thanks to inflation. Plus I think there's a high chance we are already in a recession given that Q1 GDP was negative and Q2 isn't looking much better. You may not have control over the economy. You may not have much control over increasing your income. You may not have control over whether the stock market crashes. But you do have some control over what you spend on. So start with what you can control.

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