Welcome to Saving Money with Andrew!
Last week, the US Labor Department reported that CPI (the Consumer Price Index) increased more than 5% from a year earlier. What does this mean? A basket of goods and services, including what most of us would consider essential (food/drink, housing, clothing, transportation, healthcare, etc), became about 5% more expensive in the past year, the highest annual increase in 30 years.
Sometimes inflation is obvious—prices at the pump are way up (42% in a year), and used cars are through the roof (also up 42%).[1] And sometimes it is downright sneaky, like when a $3 box of Wheat Thins shrinks from 16oz to 14oz and each Thin becomes 14% more expensive.
Unfortunately, there is relatively little we can do about inflation. But relatively little is not nothing! Here are a few ideas you might find useful:
Substitute - Consider substituting with similar goods/services whose prices have not inflated as much in the past year. Over the past year, we’ve moved away from food delivery (which has become disproportionately more expensive) and are eating significantly more food at home. Also, if you typically purchase used cars (up 42%), you might want to compare the value you’re getting versus a new car (up 6%)…if you can find one. Incredibly, the average one-year old used car currently sells for the same price as the average new car.
Defer - Certain price increases, particularly in used cars, furniture, and home improvement, are at least partially driven by temporary shortages of goods or labor. If you can afford to wait, you might find much better deals when supply chains and the labor markets are more normal (someday!). For example, after tripling in price during the spring, lumber prices are now cheaper than they were last year.
Hedge - Finally, if you can’t beat inflation, you might want to protect as many of your assets from inflation as you can. This newsletter is *not* investment advice, but as part of our low-risk/short-term savings we own US government “Series I” savings bonds, which pay a variable interest rate based on the change in the CPI. Interest is state and local tax-free, and bonds can be redeemed after one year (with a 3 month interest penalty) or after five years with no penalty.
And now…Andrew’s pick of the week:
Jennifer Senior’s Atlantic article about a family’s struggles with grief after 9/11 is a strong contender for best long-form magazine piece of the year.
And on a completely different note, I thought Daniel Hemel and Steve Rosenthal’s piece on the 28,000 Americans who have managed to save over $5 million (!) in IRAs was very interesting and eye-opening.
I hope this has been helpful. If you liked it, please share it on social media! Also, please send me your feedback, requests, and success stories.
[1] Have you tried to buy a car lately? I’d love to hear about your experience.
Earlier this month I let go of my family's trusty 2001 Toyota Highlander for a 2020 Jaguar F-Pace. Happy to answer any questions you may have!