Fight inflation? Experts give tips based on your age
Olivia Jurkovich paid $53 for a partial tank in one day this month. That’s $20 more than what she normally pays for her Mazda SUV.
“I was just shocked,” said the 18-year-old, who grew up in Woodbury and until recently worked in a coffee shop. “It’s crazy to see how much more money I have to spend on gas, so I have to save on other things.”
Inflation is a headache for every generation of consumers as US inflation rates reach levels not seen in 40 years. Financial advisors say there are important ways to combat the pain, but the approach will vary based on age, career stage, income, and the level of anxiety that rising prices bring.
“It’s going to be hard to avoid sticker shock these days, but the best advice I can give is to get back to budgeting basics,” said Thrivent financial advisor Alex Gonzalez. “Check your cash flow and get to the brass nails… What’s the amount of money coming in or going out? Inflation can mean you need to reprioritize your spending so you can reallocate your money to immediate and urgent needs.”
Young adults should tighten their belts
Jurkovich’s mother, financial planner Dawn Dahlby, has refused to increase the debit card quotas that Jurkovich and her sister Sophie, 16, receive each month to help meet their expenses. Instead, the family sat down to work out a new budget.
Jurkovich has since given up $5 lattes and $90 lash treatments, opting instead for an $11 DIY kit from Target. She also stopped eating out with friends and canceled a college sweatshirt purchase to free up money for gas.
While Jurkovich currently depends primarily on her parents, many of the same lessons apply to young professionals, said Dahlby, founder of Relevé Financial in Woodbury. She offers practical advice to young workers on her website called Build wealth and value.
“For that short time, if you can limit the instant gratifications that this younger generation is so used to,” there’s more to gas, rent and heating bills, Dahlby said.
That’s wise advice, said Zheli He, an economist at the University of Pennsylvania’s Wharton School. Grocery and transportation eat up more disposable income for households headed by someone under 25.
“If you look at the price increases for those goods and services, they’ve seen the biggest increase,” she said.
Because of this, Generation Z is “the most likely to be hit by inflation,” said Ginger Ewing, wealth advisor at Ameriprise Financial. Those under 25 have more debt and are “most likely living paycheck to paycheck.”
While there are fixed expenses like college loans, rent, and car payments, Dahlby recommends young adults, including her daughter, limit coffee shops, happy hours, and restaurants (if they even had the income to spend in those areas). .
“All of these areas are the hardest hit by inflation,” Dahlby said.
Ewing’s plan of action suggests Gen Zers quickly cash out their smallest credit card balances to free up cash for higher-priced gas, groceries and utilities. More advice: Consolidate student loans into one low-interest loan to free up cash flow. And don’t buy a car unless you have to. Prices are currently higher, particularly for used cars, due to supply chain issues including a shortage of computer chips.
If possible, continue to make 401(k) contributions through your work schedule. But if you need to cut them back a bit, pick a date and set a reminder on your phone to start them again, even if it’s just $50 a month or quarter, until the budget relaxes again.
Still pinched? Dahlby suggests young workers take a break from gym memberships, expensive cable or cell phone perks, and automated monthly payment services like Amazon.com or Ancestry.com. She also suggests looking into cheaper auto or renter insurance options.
“I believe every single person has an opportunity to look at the money that they might be wasting and cut it,” Dahlby said. “These are steps they can take over the next three or six months to beat inflation. It’s not forever.”
Midcareers should only make necessary purchases
Scouring through subscription services and canceling what you don’t use might be even more important for mid-career professionals who are more likely to have accumulated monthly automatic withdrawals for Netflix and the like.
The exercise is part of deciding which costs are material.
Target Corp. technical brand developer Jennifer Gunderson, 45, and her husband Mike Swanson, 47, planned to replace 10 windows in their 80-year-old St. Paul home. They replaced some windows for about $500 each six years ago, but the cost has increased 175% since then.
“I had this fantasy hope that the new cost would be closer to $8,000,” she said. “But the offer was exactly $12,000.”
The other big purchase this year was supposed to be a new car. But with prices skyrocketing, the couple also decided to keep racing their 14-year-old Honda. “We’re just going to sit it out,” Gunderson said.
Postponing such expenses helps with what they can’t do without. Like milk, one of Gunderson’s regular purchases, which has gone up in price. “That was the one that got me. Honestly, it’s just shocking,” she said.
While Millennials (ages 27-41) and Gen Xers like Gunderson (ages 42-58) may fare better than their younger peers when it comes to paying for basic necessities, they could still be paying off student loans, or with the high ones face the cost of raising children.
“In general, I observe that this is the group least affected by this short-term inflationary spurt,” Ewing said. “They have more disposable income. They can handle it better and make lifestyle changes easier” than adults who are just starting out.
The most important point for this group could be the assessment of which purchases are absolutely necessary. This group tends to be in “acquisition mode,” considering whether to replace high-paying items like cars, appliances and furniture, said John Dooney, strategic research manager at the Society for Human Resource Management.
Some other ideas: Cut down to one car to save on insurance and other costs. Increase auto or home insurance deductible to lower monthly premiums.
Other advisors note that cash can be freed up immediately by converting a regular Roth IRA or Roth 401(k) contribution — which is taxed now — to a traditional IRA or 401(k) that defers taxes until later.
While such savings may not seem like much on their own, together they can account for a large part of the higher cost of gas and groceries.
Thrivent’s financial advisor, Eva Stukenberg, directs clients and friends to the company’s free online site Money Canvas Program, which helps to find costs to bring them down. Most banks and credit card companies also analyze spending behavior for free.
Baby boomers need to stay the course
Wharton School economist He fears today’s inflationary climate could hurt baby boomers as they retire.
“For the older households who live on fixed incomes and receive a certain level of cash flow, inflation will erode their purchasing power,” he said.
It helps that retired baby boomers get a 5.9% cost-of-living adjustment on their 2022 Social Security checks.
In this age group, more medical expenses are also likely to be included in the basic monthly expenses.
When the retired Children’s Hospital family resource coordinator first started using GoodRx, his allergy medication costs dropped from about $20 to $4. Last month, he used GoodRx to help an elderly friend reduce her prescription costs from $150 to $41.
“I felt so good about it,” Munson said. “Until you need these services, just don’t look for them.”
But with inflation soaring, now is the time, said Munson, who used to embrace happier hours, matinees or splitting a meal with a friend to combat “skyrocketing” grocery bills.
“If you save money in some areas, you can offset rising costs in others,” he said.
The idea isn’t to increase budgets or plunder pension funds just to deal with rising prices, financial advisers say.
Thrivent’s Stukenberg advises clients approaching retirement to look for hidden and untapped benefits at work that can free up money each month. She also refers struggling clients to the National Council on Aging’s Free BenefitsCheckup website to find programs that can help cut bills in all sorts of areas.
La Donna Meinecke is hoping to retire in two years from her longtime job at HealthPartners, so the Minneapolis resident consolidates car errands to save gas, figures out which beloved magazine subscriptions and cell phone apps to cancel, and searches Sunday newsletters offers.
Buy one, get a free deal on this month’s chicken and eggs at Lunds & Byerlys and saved her $8, enough for gas at Costco, where Meinecke also does bulk shopping to save on groceries.
“I can handle it. But I just need to start thinking about inflation and really prepare for retirement,” she said. “You have to be careful.”