SUMMARY: Uncertain times can be challenging. Now is a great time to find creative ways to spend, save and plan for the future.

The cost of living is up – way up. American citizens are experiencing the highest rate of inflation since the early ’80s, and it has everyone – investors, politicians, moms and dads, corporations, and journalists – questioning what they know about the current financial state of things.

The increased cost of everyday needs, including groceries, clothing, shelter, fuels, medical care, drugs, and other goods and services are all adding up to a major pain in the pocketbook. In October 2022, the Consumer Price Index (CPI) listed the inflation rate up 7.7% from just a year before.

There are several causes to consider — the war in Ukraine, the sustaining impact of the pandemic on global manufacturing, government monetary policy, changes in consumer habits and more. And the culmination has led to uncertainty, disruption and an imbalance in supply and demand.

While many consumers may find the current market challenging to make their budgets work as prices climb, there are a couple of myths and truths about inflation to help put things in perspective:

Myth No. 1: Inflation is always bad.
Although economists debate whether a low inflation rate can help economic development, according to an economist with the International Monetary Fund, most economists believe low, stable and predictable inflation is good for an economy, reasoning that when consumers know prices will be slightly higher in the future, it gives an incentive to make purchases sooner, boosting economic activity.

Myth No. 2: Inflation has never been this high.
When financial instability occurs, it’s human nature to panic … and not consider history. Inflation has increased at drastically higher levels at several key historical markers throughout the 20th Century, usually spurned on by other historic hardships, conflicts or natural events. Here are some examples of previously high inflation levels:

• 1946 = +18%
• 1974 = +12%
• 1979 = +13%
• 1980 = +14%
• 1981 = +11%
• 2022 = +7.7%

That said, inflation has been generally lower for a majority of the last 100 years. Proving that if we can hunker down for the course-correct that will most likely come as the Federal Reserve works to put programs in place.

Truth No. 1: Inflation may lead to recession.
Inflation is strongly linked to recession. A 2022 survey of Bloomberg economists put the chance of a recession happening in the coming year at 65%. What does that mean? Employment rates and consumer spending drop, thus decreasing economic output. Recessions usually last under a year. On the other side? Interest rates will typically decrease, and a period of growth will start.

Truth No. 2: Homeowners can benefit from inflation.
The value of your home rises with the inflation rate. Owning real estate is often considered a “hedge” against inflation, as the value of your home rises with the inflation rate. For those with fixed-rate mortgages, inflation also makes your monthly payment relatively less. Since the value of real estate has traditionally increased over time, long-term homeownership can offer benefits, both during and after inflationary and recessionary times.

Ride out the turbulence
Because no one knows for certain when inflation will ease, many are taking a hard look at what they’re spending on necessities and making a budget for the cost of groceries, utilities, entertainment, vacations and other major purchases. The key word is budget. A budget will help you navigate the costs of living and calculate how much to put into savings.

“Inflation has highlighted the importance of saving money and having a budget,” says Rudy Diaz, Branch Manager of the Credit Union’s Euless, Texas, location. He notes that the Credit Union’s Financial Wellness team can help members manage budgets, modify spending plans and develop savings habits.

Be selective on major purchases
Major purchases, like buying a home and getting a new car, are possible. But they take planning and saving. According to Diaz, Credit Union members are changing their buying habits.

“More than ever, members are paying attention to vehicle values and loan rates,” Diaz said. “They’ve become savvy rate shoppers … paying attention to the interest rate and to the dollar amount the credit will cost them.”

First, determine if the new purchase is necessary for your current situation. If it is, look at ways to save for the purchase as much as possible – then shop rates. While interest rates are higher than previous years, different financial institutions will provide competitive rates. Do your research.

Some members are concerned about rates going up even more. “Due to the consistent rate increases by the Federal Reserve over the last year, and anticipation of future rate increases, members are purchasing a vehicle sooner than planned. They want to lock in a lower rate,” Diaz said.

Borrow wisely, save money
Borrowing during financial instability can seem overwhelming, but if done strategically can be a smart financial move. By using loan products, consumers can have more cash at hand while they wait for the market to turn. “Members are looking to add money back into their wallet, taking advantage of loan products that can primarily help them save money,” Diaz said.

If you want to shore up your financial position, Diaz suggests these potential options:

1. Debt consolidation loan: Consolidates credit card debt into a fixed rate for the loan term, saving members on the rate and the overall monthly payment.
2. Auto refinance: It may be possible to use your vehicle as loan collateral to pay off high-interest rate debt.
3. Credit card benefits: For example, the Credit Union’s Rewards card offers a competitive rate, no annual fee, no balance-transfer fee and points for everyday spending.