Inflation has been fairly moderate in recent years. But in an era of low savings account rates and low wage increases, even a little inflation is enough to make the difference between getting a little ahead and falling a little behind.
Inflation is running at a little over 2 percent annually. That's not bad from a historical perspective, but with savings account rates near zero, and many people hoping simply to keep their jobs rather than expecting big raises in pay, that 2 percent can easily erode a budget.
The fact is, when inflation is at a higher rate than income growth, it puts you at a disadvantage. But here are five ways to level the playing field:
1. Attack credit card debt
Low interest rates? Credit card companies clearly didn't get the memo. According to the Federal Reserve, the average credit card is still being charged an interest rate of about 13 percent. This means any balance you keep on a credit card is quickly magnifying the expense of whatever you buy with that card.
Managing credit card debt should be a top priority in bringing your expenses under control. Compare interest rates on credit cards, and try to concentrate any balances on those with the lowest rates. Most of all, try to eliminate your standing balances. Credit cards are designed as short-term borrowing vehicles, and if you carry a long-term balance on them, you lose.
2. Shop online — with care
The Internet can be a great source of shopping deals. You can comparison shop and take advantage of online coupons. Just take care that you don't get sucked into an illusion of saving that is actually leading you to spend more. Coupons are great if they are for things you needed to buy anyway, but if they cause you to buy something you weren't going to buy, the retailer wins, not you.
Also, when you use the Internet to compare online versus in-store prices, remember to factor in any shipping expenses for online purchases. Sometimes the best approach is to evaluate deals online, but make purchases locally.
3. Compare insurance annually
This can be a big-ticket item, and as such it has the potential for big savings. When you shop around, though, make sure you are comparing apples to apples. A cheaper policy that also has higher deductibles or less coverage may not really be a bargain.
4. Re-evaluate entertainment options
By the end of 2010, the amount of time Americans were spending online had drawn even to time spent watching TV, and younger demographic groups were already spending more time online than in front of the TV. So, if you've been shelling out for an expensive cable or satellite television package, you may want to take a fresh look at your family's viewing habits to decide if it's still worth it.
5. Find the best savings account rates
Average rates may only be around 0.09 percent, but you can do about 10 times better than that by shopping for the best savings account rates.
Sometimes, the financial reality of inflation means that families simply have to cut back on what they buy. However, if you want to avoid that for as long as possible, smart shopping and financial management can help you defy inflation and get more out of your budget.