We keep hearing that inflation is on the rise but what is it exactly, how does it affect us, and what should we do about it?
Mary Grothe – CEO & Founder of House of Revenue is here to help us understand the 'I' word a little bit better...
If the price of just one item or service increases, that's not inflation. Inflation refers to a general rise in the level of prices across the economy. And if prices increase faster than our income, then our purchasing power is decreased.
Simply speaking, the same money we have today does not buy as much as it did yesterday. In pre-pandemic times, inflation was around 2%. Now it is around 8-9%.
We've been seeing price increases happen more and more lately. At the grocery store, at the petrol stations, at restaurants. There's hardly a sector that hasn't undergone price hikes.
Our current inflation woes are residual from the pandemic supply chain disruptions. Before prices could recover, the war on Ukraine further pushed up the prices of wheat and petrol. Climate change has also had a hand in increasing inflation by causing work stoppages, destroying crops, and further disrupting supply chains.
Governments generally try to keep inflation within an optimal range using price and wage controls, interest rate increases, and other monetary policies.
Inflation affects us all by increasing the amount we spend on purchases and becomes a problem when our expenses keep going up, but our salaries stay the same or don't keep up with inflation.
While we don't have control over global inflation, we do have control over our finances and how we spend and invest our money. We don't have to sit passively by and allow the price hikes to negatively affect us.
The first thing to do to fight inflation is to reduce expenses. Start by creating a family budget and determine where the largest expenditures are. Is it school fees or dining out? Then make a plan to reduce these larger costs first. Continue analyzing your budget, item by item, and determine how you can make further reductions.
Many people deal with inflation by cutting expenses or switching to lower-priced alternatives. Instead of going to the movie theatre, families can purchase a streaming service like Netflix or Amazon Prime. Or maybe cut out the expense completely for now. Instead of eating out, prepare more meals at home. Instead of buying a new car, look at used vehicles or consider carpooling or public transportation.
You can also try to negotiate lower prices for recurring costs such as gym memberships, credit card rates, and insurance premiums. Also, speak to an investment advisor about diversifying your portfolio and other smart investment options.
The second thing you can do is try to increase your income. At work, ask for a pay raise or other compensation. This would be a great time to work on your negotiation skills to not just get a pay raise in line with inflation but above that. Another option would be to get a second job or side hustle. If you are a freelancer, you can raise your rates and look for higher-paying clients.
As an employer myself, my response was three-fold. The first was to make sure that employee compensation was in line with current market rates. Second, instead of allocating a performance bonus into base salary, everyone was guaranteed the bonus to help manage inflation. Third, to sustain our own business, we increased our rates with clients. Perhaps these examples will give you some ideas in your own negotiations.
There's no telling how long this current state of hyper-inflation will continue but experts predict that it will be around for at least another year. In the meantime, we have to continue being smart with our finances.
Mary Grothe – CEO & Founder of House of Revenue, Fractional CRO is 3x founder, entrepreneur, and investor, Business Scaling, Start-up’s, Global Keynote Speaker, Sales, Culture, Society, Family
Mary founded her first company at the age of 28 and became a business strategist for startups. Over a three-year period, she was instrumental in helping 36 startups reach profitability. Her passion for scaling companies grew and she founded Sales BQ® to expand her reach from startups to second-stage growth companies between $1M-$10M in annual recurring revenue. She is a keynote speaker on entrepreneurship and faith-based leadership and is working on two upcoming books to be published under Forbes.