Save Money

Save money by getting ahead of inflation

Saving money by getting ahead of inflation is a great way to stay ahead of the system. If you are able to get even 1 year ahead of inflation you’ll have the piece of mind that your lifestyle wont be threatened for at least that long, which can sometimes be better than most sleeping pills!

What is inflation?

We live in a fast-changing world where there are few things change fast, but if there is one thing we can be certain about is inflation. Prices will rise. $100 dollars in 10 years won’t buy you quite as much as they buy you today, the same way those same $100 would have bought you more 10 years ago.

The average inflation rate for the US over the past century has been 3,2%. That means (if all years were average) you’ll need $137 in 10 years to buy what you buy today with $100.

Of course salaries will also rise over time, but they don’t always rise as much, or even if they do they usually do so in a more irregular way.

How to use inflation to save money?

Some people think there’s no way they can save money with their current income. After paying for their rent/mortgage, food, transportation… the amount left is so little, if any, that saving up seems just impossible.

However, when prices rise next year, most people will somehow still be able to pay for rent/mortgage, food, transportation, etc. even if their salaries did not rise accordingly. When it comes to the things you need (the ones that fall into the “needs” category from the 50/30/20 budgeting rule) most people just find the way. Whether it’s giving up cable, not going on a vacation or even finding a second job, you’ll find the way to cover those expenses.

So even when you think today that you don’t have a penny to save, when milk goes from $3.50 a gallon to $3,62, you’ll find a way to pay for it, and the same will happen with your metro card, rent and anything else you absolutely need.

So, if you’ll find a way to pay for that price increase in a year, why not find a way to pay for it today? And once you do, since the prices haven’t gone up yet, save that money. It’s that simple.

How much money you can save by getting ahead of inflation?

This will depend on 2 variables; the inflation rate in your country and how many years you want to get ahead of inflation.

So if you are making $15,000 per year (minimum wage in the US) and you want to get 1 year ahead of inflation you’ll be saving $480 per year, or $40 per month.

But even if you are earning way above minimum wage, and even if you are already following the 50/30/20 rule and already have built a healthy emergency fund, this saving technique can help you save for something want, like the down payment for a new car or a nice vacation.

If you were earning $60,000 per year, were already following all the personal finance rules of thumb and you still challenged yourself to stay 1 year ahead of inflation you could save $1,920 over a 12 months period.

How to apply this saving technique

Like in most cases, it’s best to apply this saving technique as soon as you get paid. Assume inflation is applied directly to your paycheck and put that money aside before you start spending.