Your Budget vs. Inflation

As you and your family fight the good fight against rising prices, understand that you face not one but two formidable enemies. The first enemy, of course, is inflation/rising prices. Inflation comes straight at you, and you likely understand this enemy well. As you adjust your budget to battle this formidable foe, however, the second enemy creeps in unseen and hits you from behind. This enemy, stress created by inflation, is typically not recognized. Inflation stress creates a number of unforeseen cognitive (thinking ability) problems that can impact you without you even knowing it.

A recent poll from The American Psychological Association (APA), found that 87% of us have experienced stress over rising costs of food, energy, and normal, everyday-use items. A recent CNBC-Momentive poll found that Americans have taken the following steps in the last six months to address inflation:

• 53% of Americans have cut back on eating out.

• 39% have cut back on driving.

• 35% have canceled a monthly subscription.

• 32% cut costs at the grocery store by switching to generic or store brands.

According the APA, stress over your finances can create a scarcity mindset—a condition in which you become so focused on your lack of something (in this case money), it becomes almost impossible to focus on anything else. This creates a psychological condition called “tunneling” in which the things we are focusing on consume all of our available brain power. Tunneling was a survival tool to motivate our ancestors to find food or water, but not so great for handling the many stresses we encounter in modern life.

A scarcity mindset creates more than just simply the stress you experience from inflation. Two studies illustrate the real-world consequences created by a scarcity mindset. The first study involved sugar cane farmers in India who make most of their annual income selling their harvest in the fall. They must make this money last until the next year’s harvest. Scientists gave the farmers an IQ test before and after the sugarcane harvest. The results showed a 13-point drop in IQ scores before the harvest while the farmers were experiencing financial stress. After the harvest, their scores returned to normal.

The second study at a New Jersey mall involved decision making by those who were experiencing financial problems. They found those people who were suffering from a lack of money made poor decisions when faced with complicated financial choices, even though their cognitive abilities were otherwise normal. The stress of financial shortfalls simply overwhelmed them. As we can see, when we need our brains the most to deal with the threat of inflation, our cognitive capabilities decrease.

In Confident Money, we pride ourselves on providing solutions, and, of course, we have several action steps to suggest.

Strategies to Overcome Financial Scarcity and Tunneling:

• Focus on your advantages. Remember the many skills you bring to the table that can enable you to earn more income. Focus on the money you have saved. Whatever your advantages might be, focus on them to transition out of a scarcity mindset.

• Pay attention to exercise and diet. Exercise stimulates the brain and sharpens your thinking. Food provides your brain and body with the fuel it needs.

• Be grateful. According to Forbes, gratefulness can help snap you out of the scarcity mindset.

• Focus on opportunities and possibilities. Solutions are very likely right in front of you, but people who are stressed find it hard to think creatively. Try brainstorming possible opportunities with your significant other or a friend.

• Hang out with positive people. Don’t let negativity drag you down.

• Continue your investing program. This is an opportunity to buy low!

• Keep educating yourself about your finances.

• Focus on your financial goals.

Strategies to Help Your Budget Overcome Inflation

• Gain clarity about your money. How much is coming in and going out of your family budget?

• Become a sales shopper.

• Use loyalty and rewards programs.

• Evaluate your emergency fund balance.

• Reduce your income taxes.

• Reduce interest rates on outstanding loans by refinancing, particularly with credit card loans.

• Plan meals to cut costs on your grocery bill.

• Reduce energy use.

• Review insurance providers and shop for lower-cost policies.

• Drive efficiently to save gas.

• Buy store brands when possible.

• Buy in bulk.

• Ask for discounts.

• Review streaming and magazine subscriptions.

• Subscribe to Confident Money for more FREE money-saving tips.

Ever seen the popular meme, “Stay calm and carry on”? This is a very relevant concept. We are all facing inflation stress, but let’s not forget the opportunities and talents we have to effectively manage these challenges.

~ Larry Faulkner