I’ve been watching the inflation rate with interest. And the local commercial tv stations running around like headless chickens talking about how disastrous inflation is and how we’re all ruined, yet not offering any concrete examples of how to manage you money to get the best band for each buck.

Backgound

To put it in very simple terms, inflation is when prices go up. As opposed to deflation when prices go down. Excuse me for laughing maniacally; prices go down! As if!

Although at the moment, I’m noticing a third phenomenom more; shrinkflation, where prices remain the same, but product sizes go down. In fact, one of our major supermarket chains has dropped the “standard” size, offering a bigger (more expensive) size instead.

To come up with the inflation rate, the Australian Bureau of Statistics calculates the Consumer Price Index, based on thousands of items, grouped into 87 expenditure classes and 11 groups. Each quarter they check the prices, and based on the overall change, this lets us know whether it’s up or down.

For the reference period of March 2022, inflation rose 2.1%. Over the last 12 months, it’s risen by 5.1% due to an increase of 5.7% in new dwellings and 11% in automotive fuel. The highest since 2009.

Non-discretionary items (such as housing, food, health care, and fuel) were at 6.6%; more than the inflation rate and more than twice as much as discretionary items (2.7%).

So overall, food, housing, transport, health and education were the big ticket increases, while clothes, furnishings, tobacoo and alcohol, communication, recreation and insurances all fell.

And after the Covid job losses, many people have already run through their savings and don’t know what to do now.

So you can see why the tv news is wringing its hands.

Savings Plans

As I’ve already mentioned, the modern way of savings plans (or budgeting to use the traditional term) is to start from your expenses and work back to meet your wages, whereas in the old days, you started with your wages (and with no credit cards) worked out what you could afford.

I’m starting to feel a modern approach has to consist of both, though I’m not exactly sure where the starting point/middle would be.

The list below comes from my book Holistic Personal Finance, and is based on my research into Depression era finances. The ranking comes from Maslow’s heirarchy of needs, which is usually laid out as a triangle with the most basic needs at the bottom, but in this list, the lower the number (higher the rank), the more basic the need is.

So food is number one, because you need good food for good health, and advancement/higher life for most people will be number five.

But even in the Depression, people scraped up enough money to go the to pictures because they needed something to take your mind off things. (Fred Astair and Ginger Rogers dancing their way through exotic locations in sumptuos fashions).

Streaming is way cheaper than movies, so don’t rush to cancel your streaming service.

1. Food (9% – 62% of income), e.g. raw materials, luxury items, confectionary, out of season and entertainment
2. Housing (12% – 35%), e.g. rent or mortgage, repairs, improvements, taxes.
3. Clothes (12% – 20%), e.g. necessities, personal adornment and fashion
4. Operating Costs (5% – 29%), e.g. wages, utilities, stationery, transport, medical and other professional services (e.g. lawyers) and miscellaneous
5. Advancement/Higher Life (0% – 25%), e.g. church, charity, education, amusements, savings and investments, gifts

So, you have to start thinking about where you are before you can think about where to cut and paste bits and pieces of money to make it add up.

Quick Wins

I would advise you not to reduce your provision for food (that old health thing). But consider cutting back on meat, buying local and in season, and bulking up your meals with vegetables and dried pulses. You could also consider shopping at markets and wholesale retailers instead of supermarkets as well as growing some vegetables yourself. Though perhaps, this might be the time to cut back on chips, biscuits, soft drinks and other discretionary purchases which will help your health as well.

If you’re worried about what the kids will say, ignore them. I grew up without all that stuff in the pantry, and I make sure DB’s treats go up on the top shelf where I can’t see them and don’t miss them. Their health, and yours, will thank you.

Don’t stop taking your medications, but do quit smoking!

Clothing and operating costs are the main ongoing areas we can save money. Shop your closet, and exhaust your current clothing before you buy anything new.

Renegotiate your utility prices, leave your car at home and catch public transport, use up all your old notebooks and pens before you buy new ones.

These are all simplistic suggestions that will work for some, and not others. And they are all things you can do on your way to the big one.

Not my house!

Interest rates are going up, which means many of us are looking at paying more for our homes.

Start by write down all your debts and their interest rates. Work out what you can pay down now to free up money when you need it later.

Calculate what your mortgage payments will be for each 0.25% your rate goes up so you know when you have no choice but to sell.

Before things get tough, shop around for better deals on all your debts, and consider fixing your mortgage rate which will at least give you breathing space, though the rate situation may be worse when you come out the other end. Ask your bank what their hardshop provisions are, and when you can access them.

If it looks bad… Consider selling now, before your mortage lender forces you to.

Renting

If you rent, the situation is much harder. As mortgage rates go up, it’s likely rents will go up too, because you’re paying someone else’s mortgage. And if they can’t afford it, they may sell the place and you’ll be forced to move.

For you, consider your location, and how far away you can move. Think about whether you need a house, or could down size to an apartment, or a studio, or a room in a share house.

On the bright side, if prices drop, you may be in a good position to buy something.

The Plan

Prudence is a presumption of the future, contracted from the experience of time past.

Thomas Hobbes

So the upshot of this rather long post, is to start thinking about what you’re going to do. The media believes it’s going to get worse.

In fact one pundit (whose name I didn’t catch) said something along the lines of it’s going to get worse, before it gets worse, before it gets better.

You have to be your own super hero who swoops in to save you. And you can do that by making yourself think about your worse case scenario, and starting to take action before you get to the worse before it gets worse.

Disclaimer

I am not a licensed financial advisor. My book, and this post, express a philosophy of presonal finance, and make suggestions based on that philosophy. Any plans you make as a result of reading the book, or this post should be reviewed by a licensed professional.