Friday, October 15, 2021
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Friday, October 15, 2021

Why “Covidflation” May Be Causing Havoc On Your Personal Budget And What You Can Do About It

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The local weather reporter announced that in California this summer we would be facing record heat. In fact, sheltering at home here in Southern California, we’ve already seen 100-degree days–in May!

Normally this wouldn’t be an issue. I’d be at work in a nice air-conditioned office, and my kids would be at school, maybe enjoying a school-treated  popsicle.  After school, my husband would take them to swim. They love to swim, they love their swim instructor, and they swim like fish in our neighborhood pool.

But Covid-19 has shut down all the neighborhood pools, most beaches, and most parks in our neighborhoods. So, I started getting on the hunt for an above-ground pool, one of those inflatable pools you used to see in the toy department at Target. In fact, I had bought one when the kids were a bit younger, in the clearance department for less than $50. Now, as I’m shopping on Amazon, I can barely find one that will fit my 11-year-old adult-size child and his siblings for less than $800. That’s beyond crazy, well above the usual 2%-to-3% inflation we anticipate in planning our personal finances.

What happened, you ask? Well, it’s simply what I now call “Covidflation,” thanks to the shortages — or consumer fear of shortages — sparked by the Covid-19 pandemic. Several of my colleagues say that they can’t find 4k webcams anywhere–unless they are willing to wait until at least June.  My officemate searched high and low for a freezer, only to have his shipment canceled by two stores. He ended up buying a floor model refrigerator at more than he ever anticipated spending. My business partner said that the cost of weights to maintain his exercise routine at home had increased by at least 300%.  Don’t even get me started on how hard it’s been to find eggs, flour, and yeast!

And it’s not our imaginations. The statistics behind the shortages and inflated prices show they are very real.

The U.S. Department of Agriculture, for example, found the average wholesale price for Grade A large eggs climbed from $1.01 to $3.07 in March. US beef, pork and chicken production are down 25%, 15% and 4%, respectively, as of April 25, due to the virus, which sickened many processing plant workers.  President Trump has ordered the facilities to remain open but it is possible that employee illness and absenteeism, along with health-protecting precautions, could result in shortages.

But meat and eggs aren’t even the biggest areas of concern. Inflated prices are hitting hard at such staples as baby food and peanut butter, yes peanut butter! The price of baby food went up 3.68% from January to February, according to 247wallst.com.

The price climb was even steeper for peanut butter, which shot up 4.16% in that same one-month period.

Even that juicy, beautiful pineapple I used to pick up at my neighborhood Costco for less than $2 is now going for almost $4 on my Instacart Costco list. That factors in the ease of Instacart, but doesn’t include the tip that I’d gladly pay now to the hardworking grocery delivery person.

Some states, including California and Texas, have laws limiting the amounts of price increases during a state of emergency. Lawsuits accusing egg producers of price gouging have been filed in both those states.

So how much more will the cost of goods go up? How do you even plan for an emergency fund when prices rise so quickly?  As financial advisors, we help our clients save for the “just in case,” aka the emergency fund, just as we help them plan for the future via retirement, estate, long term care, vacation, and all the important “plannings”.

You’ve heard me say it before, but I will say it again: You must create a budget and stick to it!

True, you can’t know how much more the basics are going to increase but carefully tracking where your money goes and be sure to set aside something for an emergency fund will go a long way toward relieving your anxiety and saving your financial life.

Here’s how to do it in a few easy steps:

*Download a budget worksheet form from our site.

*Write down everything you spend for at least a month and scour your list to see what you can cut. You’d be surprised how much those little extras add up.  You can cut out a few lattes or fast food meals and really see a difference in how much you can save.

*Whether you are still earning a paycheck or relying on unemployment payments, you can still find a way to save at least a little toward that emergency fund. Once you have earmarked money for the necessities–rent or mortgage, utilities, groceries, gas, and insurance payments–put anything left over, even if it’s just $25, into your savings account to build up that emergency fund.

*If you are carrying a balance on credit cards, work to pay down the ones with the highest interest rates first and promise yourself not to use them again until everyone has a zero balance.

*This should go without saying, but it’s important to defer any unnecessary spending until you have your finances under control.  That new car or TV set can wait a while.

*If you are having trouble meeting your monthly obligations because of the coronavirus outbreak, talk with your landlord, your mortgage company or your credit card issuer.  Most are willing to work with you–they know we are in a national crisis and many otherwise credit-worthy people are affected.

These are unusual times, to say the least, and we are likely to have to live with Covidflation, and other pandemic effects, for quite a while. Being prepared financially is one good way to enhance your peace of mind as we navigate this storm together.

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