This is a guest post by Mr Credit Card from http://www.askmrcreditcard.com/, which is an online credit card review site. Today, Mr Credit Card is actually going to veer off from his usual credit card topic and write a post about coping with "inflationary expenses". If you are looking to get a credit card, please check out his best credit card deals and offers section on his site.
There are some things that just keep going down in prices. Computers, for example, keep getting cheaper every year. If they do not get cheaper, then at least they have more processing power. Same goes with most electronic gears. But most other items just seem to keep getting more expensive. Some of these items make up the bulk of our big purchases in our lives (or at least are on-going expenses). How do we cope with them or at least mitigate their rise in price every year?
But first, let's explore some of the things that simply keep rising (at least most of the time).
House Prices and Rent - This is one of the biggest concerns when you are younger. Can you afford to buy a home. This becomes a factor especially when you are planning to get married. According to statistics, house prices (over the very very long run) have appreciated about 2-3% a year. But prior to the crash housing prices were rising 5% to 10% a year in different markets.
If this was 2005 and you were a young couple, how do you cope with runaway prices? Not much you can do except to rent and save and wait for the right opportunity (which may be now).
Gasoline prices - We have seen the days when oil was $20 a barrel and gas prices was ridiculously low. But with a weak currency, we may be in a period where oil prices stay high.
Food - Ever noticed that the cereal makers increased the prices of cereals in 2008 (or they gave less amounts in the same box)? What was the reason they cited? High commodity prices. But ever since 2009 when commodity prices collapsed, the prices of cereals have not changed. Kelloggs was quick to raise prices but somehow when corn prices decline dramatically, you do not hear these same companies lowering prices! Hence, food prices will always be rising no matter what.
Cost of college education - The cost of college education continues to defy expectations. While the so-called official consumer price index is about 3% a year, the inflation of college education cost runs about 5% to 7% a year. And it shows no sign of stopping even in this recession. This presents a huge burden to couples with kids. The amount that you have to set aside just to fund your kids college education is simply unreal!
Travel - Ever noticed that taking a vacation is always more expensive? Airline prices keep increasing because of "oil prices"? Mergers between different carriers also mean that the airline industry here is becoming more like an oligopoly. Hence, prices are pretty sticky. Remember why the Motel Chain used to be called 6? Because, they charged (or at least used to) $6 a night. Those days are long gone!
Medical Cost - We all know that medical costs are increasing. But for seniors that are planning for retirement, medical cost isn't just the issue. The real issue is the increasing cost of long term care. The insurance industry has done studies to show that there is a good chance that a senior person will at least visit or need a long term care facility at least once in their life time. Yet, the cost are really staggering - ranging anywhere from $150 to $250 a day. The rate of inflation of long term care cost is about or higher than 5%!
There are various things you can do to help with with these expenditures that I mentioned above. Let's start with housing prices. There is nothing much you can do if you are in a super housing bull market or a bear market. But you certainly be grounded and not buy something you cannot afford, not taking silly adjustable mortgages, making sure you put a substantial down payment (at least 20%). And if you cannot afford to buy a house, just keep renting. Or you could find a really cheap place to live and maybe even buy a premade log cabin!.
You can dramatically reduce the cost of food prices by making extensive use of coupons. Use both manufacturer's coupons and stacking with store coupons are a great way to save on grocery and food shopping. Most grocery coupons are available in your Sunday newspapers so make sure you get a copy. To top it up, you should consider getting a cash back rewards credit card to help you save more money. You could do what Mary does and have your own vegetables garden and get your own fresh eggs.
When it comes to gasoline prices, I think the most important thing is to actually buy a fuel efficient car and buy one that just fits your needs. Another thing is to make sure you fill her up with the right type of gasoline. Many cars require just regular gasoline but many folks insist on using "premium gasoline". Different cars also have different insurance cost. You can bet that a BMW is more expensive to insure than a Toyota Corolla. You can also consider using a gas rebate credit card to help you earn rebates at the pump.
If you have kids, there is really not much you can do in terms of college inflation. You could hope your kid gets a sports scholarship and you should definitely work on getting scholarships. But like retirement savings, you could start early by contributing regularly to a college 529 plan. When you reach your fifties, you could also consider purchasing a long term care insurance plan as well to hedge against the event that you have to end up in a nursing home in your old age.
Lastly, we all like to travel. But travel cost seems to go up every year. How do you hedge against this? To be honest, there's not a whole lot you can do. The folks in the time share business will tell you that buying a time share is the best thing because you lock in a low cost and you can "exchange vacation spots". But in all honesty, this is what I think you can do to save on your travel expenses.
Firstly, you can fly just a couple of airlines so you can earn air miles with just one or two frequent flier programs and get free flights once in while. Try to stay in the same chain of hotel as well since you can earn frequent guest points and get other discounts. Learn when is the best time to book flights and understand the seasonality of booking cheap tickets. Obviously, you can also get an airline credit card that lets you earn frequent flier miles. Or you can make hiking trips and travel by a trailer.
To sum up - Personal finance gurus like David Bach have started this whole concept of not buying starbucks coffee and what it can save you. But to be honest, a cup of coffee is really a small expense. The items that I just mentioned are much bigger (or more costly) items and focusing on handling their cost inflation would be much more productive for your own personal finance.
Posts
1 comments:
One way to cope with college inflation: take the first two years at a community college.
Employers and graduate schools notice only where you finished the bachelor's degree...they don't care that you took lower-division work at a cheaper school. Often instruction is better at community colleges, because faculty members focus mostly on pedagogy and are not distracted with the demands of governance and publishing. Too many lower-division courses in four-year universities are taught by graduate students, not the case at community colleges.
Another strategy is to take as many credits as you can stomach in summer school. This can cut a year or more off a typical four-year degree program.
Post a Comment