Managing Inflation

Personally and professionally, now is the time to identify areas of opportunity for savings.

In the mid-July report, the CPI inflation rate for June was 9.1%, which is its highest since 1981 and was showing little sign of abating. This means we should continue to see the Federal Reserve tighten monetary policy, which raises the cost of borrowing, and usually hurts the stock market. This could also potentially push us into a recession if we’re not in one already.

According to the Bureau of Labor Statistics data from May 2022, over the last 12 months inflation was having the largest effect on gasoline (+48.7%), airfare (+37.8%), transportation (+19.4%), hotel rooms (+19.3%) and household energy (+19.1%), which are primary spending categories for many of us.

Many expect these trends to continue over the next 6-18 months given the government’s proclivity for printing and giving away money, increasing regulations, while still attempting to pass additional spending programs, which were primarily responsible for the inflation problem in the first place. Additionally, most states are still flush with federal funds provided during COVID which they continue to spend, contributing to the problem.

Not the greatest news, but a prompt to examine our personal and business spending activities so we weather the storm and remain financially healthy. Personally, I did an overall assessment of where I’m spending money; what’s necessary, what can be scaled back, what I’m utilizing regularly or not at all, and what my options are. And honestly, I was well overdue for running this analysis.

I started with my home, auto, life, and umbrella insurance policies given the money that I spend on these products every year. I didn’t change any dollar coverages, but I was willing to accept higher deductibles, which saved money. And simply shopping my insurance purchases for the first time in several years saved a significant amount of money.

Subscription products were next. Did I really need subscriptions to four different newspapers? No, I could live with two. Did I really need cable TV at $180/month when I could switch to YouTube TV at $65/month? No, so I made the switch. Communication products were also on my list. Did I really need two landlines, one for business and one for personal, when I took every call on my cell phone?

While this can be a valuable personal exercise, I recommend thinking about it from your customer’s perspective as well. They too are in a challenging environment, and while they’ve been able to consistently raise prices to stay ahead of inflation, at some point that opportunity will evaporate, with customers either unwilling or unable to pay more. If that happens and staffing, marketing, and product costs go up, they could take a significant hit to their bottom line.

Suggest they review their insurance policies, and subscriptions, or take advantage of early payment terms, which could put them in a better position. Help them identify areas of opportunity for savings, and what can be purchased in bulk to capture favorable pricing today. Advise them to track key metrics, such as customer visits, that might enable them to see a recession and be proactive. As a partner to their practices, showing them you understand and care about their business won’t be forgotten.