August 22, 2022
Inflation, deflation, stagflation – any term that ends with “flation” causes worry for your personal and professional financial bottom line. There is no doubt America is in the midst of an inflationary period where demand for goods and services exceeds supply forcing prices higher.
One economic journal likened inflation to a bear coming out of hibernation. As the restrictions of the pandemic ease and workers emerge to return to their normal work and personal lives, people are more likely to travel for business or pleasure, buy new clothes, cars and trucks, and other items that now are in short supply. Higher demand for air travel, along with higher fuel and labor costs, cause sharp increases in airline tickets and hotel rooms. Increased demand plus lower inventory creates the higher prices we call inflation.
American economist Milton Friedman called inflation “the one form of taxation that can be imposed without legislation.” It is, in fact, a silent budget killer that wreaks havoc with your carefully crafted spending plan as your buying power decreases. Normally, inflation may cause a loss of two to three percent in buying power. Now, inflation is more than eight percent – a rate we haven’t seen in 40 years.
The economic theories, of course, are much more complex and always debatable. What matters to your personal and business finances right now is how to cope and weather the “flation.” Many experts agree the best course is to be proactive in weeding out less necessary expenses. They warn against being reactive with investments.
Next Advisor, a Time partner, suggests comparing your spending during the first four months of 2021 to the first four months of 2022. You may be surprised to learn inflation has impacted you less than you thought. “For others, the full weight of inflation could be a significant financial hurdle to overcome.”
CNBC Senior Personal Finance Correspondent Sharon Epperson suggests calculating your personal inflation rate using these steps which can be adapted for business spending as welll:
- Add up your monthly spending for last month and what you spent on the same goods and services a year ago.
- Subtract your total spending for July 2021 from July 2022.
- Divide that difference by your monthly expenses for July 2021.
- The result of that equation is your personal inflation rate.
Your personal inflation rate is just a number. Use the year-to-year comparison to find areas where you can cut expenses.
Tips For REALTORS®
- Right Size the Office. A valuable pandemic lesson is that remote working actually works. In fact, some studies revealed that working from home benefitted the employer as employees were available more hours and absenteeism decreased. If remote working works for you, consider downsizing your office space and eliminating multiple office locations. If you’re in the middle of a long-term lease, see if you’re allowed to sublet some of your space.
- Protect the Workforce. According to Funding Circle, an important element of inflation survival is employee retention. Now is not the time to downsize your agents and office staff only to have to spend money advertising for new ones and training them later. Onboarding is costly and your ability to meet customer demand may be affected until new employees are up to speed.
- Reward the Workforce. Your employees are coping with inflation, too. Make sure they are paid fairly and look for other perks and rewards that will keep them working at their best. Flexible scheduling, extra paid time off, child care assistance, cell phone plan reimbursement, and fitness club memberships are just a few ways to reward employee loyalty and help them deal with rising prices. Talk with employees and see what would mean the most to them.
- Eliminate unnecessary expenses.Do this even in the best of economic times. Check your invoices and credit card bill for recurring charges for subscriptions and products you don’t need or can do without temporarily.
- Maximize credit cards.Cash-back credit cards can reduce your expenses just by paying your bill off and on time every month. If you pay off your balance in full every month, use your cash-back credit card to pay as many bills as you can. Check your automated charges for everything from internet and cell phone service to office supplies and make sure they are billed to a cash-back card. Use the cash-back reward as a partial payment of your balance to reduce expenses by the amount of the cash-back reward. CNBC’s Epperson recommends using just one credit card to make it easier to know exactly what you’re spending each month.
- Negotiate. Use your REALTOR® superpowers to negotiate a better deal on everyday expenses. A call to your cell phone provider can reveal untapped discounts or plan changes that better fit your needs. Insurance premiums, streaming services, memberships, and other services are usually negotiable if you ask. If you find a vendor unwilling to offer a discount or negotiate, consider other providers.
- Put the brakes on big spending.Car prices are high due to low inventory and supply issues. Unless your current vehicle is unusable or unsafe, consider waiting a few months as inventories and parts level out. The same is true for big-ticket office equipment. Use what you have until terms are more favorable for leasing or purchasing.
- Alleviate pain at the pump.Rising fuel prices are a major factor in inflation and REALTORS® feel the pain. The United States Department of Energy recommends these tips to use fuel efficiently and reduce costs:
- Slow down. Every 5 miles per hour over 60 equates to an additional 15 cents per gallon. Avoid rapid acceleration and excessive breaking to save gas.
- Maintain your car. Regular oil changes and tune ups, properly inflated tires, and clean air filters improve your car’s efficiency.
- Drive wisely. Use cruise control, where possible, and avoid excessive idling.
- Plan. Use your weekly schedule to consolidate multiple trips in to one or two. Encourage virtual showings to screen houses to visit in person.
- Lighten Up. If your car doubles as a truck or storage room, eliminate anything you won’t need for each trip. A heavier vehicle uses more fuel.
- Get rewards. Credit cards often offer special cash-back percentages for fuel purchases. Take advantage of higher percentage offers. Loyalty programs are a great way to save. Many offer cents off per gallon for loyalty members on certain days and free gas after so many dollars purchased.
How long will inflation last? As with most economic issues, expert opinions vary. The Federal Reserve Bank expects inflation to be above the customary two percent annual target into 2024. But there may be price relief in some areas as supply chain issues are resolved and consumer demand cools. In the meantime, sharpen your budget pencil and curb your appetite until the economy returns to the “Goldilocks state” of just right.