I know it’s not the most fun subject to talk about; still, with all the constant coverage of inflation on the news, I feel it’s important to share some perspective from the viewpoint of financial professionals who aren’t in it for the clicks, retweets, and sensationalized attention.
Yes, steady inflation has impacted the global economy for the past year or so. While every political pundit will try and blame one another for why this has happened, it’s safe to say that once-in-a-generation events like a global pandemic or war will impact how the economy around the world functions.
I’m not here to offer any political viewpoint or play Monday morning quarterback to any people in positions of power. However, as a family financial planner, I hear similar questions and concerns from my clients, friends, and even family members. I’ve been in financial planning for over two decades and have experienced my fair share of economic ups and downs. With that experience comes knowledge and wisdom. As I mentioned, I want to help quell some of the fears many people have and offer a long-term perspective on where our current economic situation may lead us.
Savings Strategies – Don’t Follow the Panicked Crowd
A recent Gallup poll conducted at the end of the summer found that 56% of Americans claim they are feeling some financial hardship due to inflation and the rising costs of goods.
Now, the poll goes on to indicate that the level of hardship is disproportionately hitting families under certain poverty levels; this is not surprising, as is usually the case, but it is surprising how many middle-class families are claiming to be feeling immediate hardship as well.
While I no doubt believe that some people are feeling a new and uncomfortable financial pinch, I also believe that many are being told so often that inflation is hurting their bottom line that they become panicked unnecessarily. A panicked individual may act irrationally in the circumstances they cannot control.
I often find frustration with how the 24-hour news cycle covers the economy. The economy is inherently a slow-moving beast, and it doesn’t follow the needs that media producers want, so it must be sensationalized all the time – this isn’t healthy for people’s understanding of the economics of financial confidence.
Much of the inflation numbers we see are due to the housing market going crazy over the past few years. On the flip side, many families have their 30-year fixed mortgage at a low rate, so they are largely unaffected by the rising housing cost and the rising interest rates to battle inflation. What was once a colossal liability is now becoming someone’s more considerable asset. People are no longer rushing to pay off these 2.75% mortgages.
Saving Strategies – Clear Perspective, Not Reactionary Actions
Humans are very reactionary creatures, and sometimes, our impulses get the better of us. For example, sometimes, we get hyper-focused on some numbers while completely ignoring others.
I have a friend who often talks about where the cheapest gas stations are in the state, and without fail, he’ll locate a station that’s 15-20 cents cheaper than other neighboring stations. He’ll drive 15-20 minutes further to fill up at the cheapest stations. And while he may get immediate satisfaction from paying less at the pump, he’s not considered the opportunity costs of his time to go further out of his way for the gas, not to mention the mental effort he’s spending each week locating these stations. And most obvious of all, he’s burning more gas than necessary to reach the cheaper stations!
Growing up in CT, my father would go even further. He would make a 40-minute drive to the border in Mass to avoid the high CT gas tax! It was a point of pride for him.
It doesn’t take a logistical/financial guru to tell you there are flaws to this type of logic, but he FEELS better chasing the cheaper fillup, even if it’s costing him more resources in the long run. I like using this anecdote to provide some perspective on how economic ebbs and flows can have us chasing the “quick fix” saving strategies. However, in the long run, these strategies are truly a placebo effect and don’t help us reach financial goals and build strong foundations.
Saving Strategies – Control What You Can
While my title may be a financial planner or advisor, I often feel like a life coach/therapist! In my industry, fear and anxieties result from a lack of perspective and the feeling of no control. I remind my clients often that there are things you can control and others you cannot. You CAN’T control the price of gas from week to week or how much a gallon of milk costs due to supply chain issues. But, you CAN control your investment strategies, the location where you live/how much rent you want to pay, when to refinance your mortgage, and much more.
We are not powerless with our financial livelihoods, and while the economy will have ups and downs, it’s not a world-ending storm we cannot survive.
If you have questions about your situation and financial future, please reach out. I’d love to hear your story and provide some alternative perspectives.
If you enjoyed this article, please read my accompanying articles:
Middle-Class Income: Is Inflation Squeezing the Middle Class?
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