Olivia Jurkovich paid $53 for a partial tank of gas one day this month. That’s $20 more than what she normally pays to top off her Mazda SUV.
“I was just shocked,” said the 18-year-old who grew up in Woodbury and who until recently worked in a coffee shop. “It is crazy to see how much more money I have to spend on gas, so I have to kind of cut back on other things.”
Inflation is causing headaches for every generation of consumer as U.S. inflation rates reach levels not seen in 40 years. Financial consultants say there are vital ways to combat the pain, but the approach will differ depending on age, career level, income and the level of anxiety rising prices bring.
“It will be hard to avoid sticker shock these days, but the best advice I can give is to go back to budgeting basics,” said Thrivent financial consultant Alex Gonzalez. “Revisit your cash flow and get down to brass tacks … What’s the amount of money coming in vs. going out? Inflation may require you to reprioritize your expenses so you can redirect your money toward immediate and pressing needs.”
Young adults should tighten belts
Jurkovich’s mother, financial planner Dawn Dahlby, refused to increase the debit card allotments Jurkovich and her sister, Sophie, 16, get each month to cover their expenses. Instead, the family sat down together to figure out a new budget.
Jurkovich has since given up $5 lattes and $90 eyelash treatments, opting instead for a DIY kit from Target for $11. She also stopped eating out with friends and canceled a college sweatshirt purchase to free up money for gas.
While Jurkovich is mostly dependent on her parents right now, a lot of the same lessons apply to young professionals, said Dahlby, founder of Relevé Financial in Woodbury. She offers practical tips to young workers on her website called Building Wealth and Worth.
“For this short period of time, if you can limit the instant gratifications that this younger generation is so used to,” there is more to spend on gas, rent and heat bills, Dahlby said.
That’s smart advice, said Zheli He, an economist at the University of Pennsylvania Wharton School. Food and transportation eat up more discretionary income for households headed by someone under 25.
“If you look at the price increases on those goods and services, they have experienced the biggest increase,” she said.
For that reason, Generation Z is the “most likely to be affected by inflation,” said Ameriprise Financial private wealth adviser Ginger Ewing. Those under age 25 have more debt and are “most likely to be living paycheck to paycheck.”
While there are fixed costs such as student loans, rent and car payments, Dahlby recommends young adults, including her daughter, cut back on coffee shops, happy hours and restaurants (if they had the income to spend in these areas in the first place).
“All of these areas are getting hit the hardest with inflation,” Dahlby said.
Ewing’s action plan suggests Gen Zers pay off their smallest credit card balances quickly to free up cash for higher-priced gas, food and utilities. Other advice: consolidate student loans under one low interest-rate loan to free up cash flow. And don’t buy a car if you don’t have to. Prices are higher right now, especially on used cars, because of supply chain problems, includinga shortage of computer chips.
If at all possible, keep making 401(k) contributions through your work plan. But if you need to briefly scale back on them, pick a date and set a reminder on your cellphone to start them again, even if it is just $50 a month or quarter until the budget is loosened again.
Still pinched? Dahlby suggests young workers consider taking a hiatus from gym memberships, costly cable or cellphone perks, and automated monthly payment services such as Amazon.com or Ancestry.com. She also suggests researching cheaper auto or renter insurance options.
“I believe every single person has an opportunity to look at the money that they may be wasting and cut back,” said Dahlby. “These are steps they can take for the next three or six months to beat inflation. It’s not forever.”
Midcareer professionals should make only essential purchases
Looking through subscription services and canceling what you don’t use could be even more important to midcareer professionals, who are more likely to have accumulated monthly automatic withdrawals for Netflix and the like.
The exercise is part of deciding what costs are essential.
Target Corp. technical brand developer Jennifer Gunderson, 45, and husband Mike Swanson, 47, planned on replacing 10 windows in their 80-year-old St. Paul home. They replaced some windows six years ago at about $500 each, but the cost has gone up 175% since then.
“I had this fantasy hope that the new cost would be closer to $8,000,” she said. “But the quote was right around $12,000.”
The other big purchase this year was going to be a new car. But with skyrocketing prices, the couple also decided to keep driving their 14-year-old Honda. “We’re just going to ride that out,” Gunderson said.
Putting off such expenses will help with what they can’t do without. Like milk, one of Gunderson’s regular purchases that has gone up in price. “That was the one that got me. Honestly, it’s just shocking,” she said.
While millennials (ages 27 to 41) and Gen Xers like Gunderson (ages 42 to 58) might fare better than their younger peers on paying for the basic groceries, they still could be paying off student loans or facing the heavy costs of raising children.
“Generally what I am observing is that this is the group that is least impacted by this short-term burst in inflation,” Ewing said. “They have more disposable income. They can stomach it better and make changes to their lifestyles” more easily than adults just starting out.
The most important item for this group might be assessing what purchases are absolutely necessary. This group tends to be in “acquisition mode,” weighing whether to replace high-ticket items such as cars, appliances and furniture, said John Dooney, strategic research manager at the Society for Human Resource Management.
Some other ideas: Cutting back to one car to save on insurance and other costs. Raising insurance deductibles on cars or homes to shrink monthly premiums.
Other advisers note that cash can be freed up instantly just by changing a regular Roth IRA or Roth 401(k) contribution — which is taxed now — into a traditional IRA or 401(k) that defer taxes until later.
While such savings might not seem like much alone, together they can make up a big portion of the higher cost of gas and groceries.
Thrivent Financial consultant Eva Stukenberg refers clients and friends to the company’s free online Money Canvas Program, which helps find costs to cut. Most banks and credit card firms will also analyze spending habits for free.
Baby boomers need to stay the course
Economist He of the Wharton School worries today’s inflationary climate may hurt retired baby boomers.
“For the older households who live on fixed incomes and get paid a set level of cash flows, their purchasing power will be eroded by inflation,” He said.
It helps that retired baby boomers are getting a 5.9% cost of living adjustment in their 2022 Social Security checks.
This age group also likely has more medical costs included in monthly core expenses.
The first time the retired Children’s Hospital family resource coordinator used GoodRx, his allergy drug costs fell from about $20 to $4. Last month, he used GoodRx to help a senior friend cut her prescription cost from $150 to $41.
“I felt so good about that,” Munson said. “Until you have a need for these services, you are just not looking for them.”
But with inflation spiraling, now is the time, said Munson, who has adopted early happy hours, matinees or splitting one meal with a friend as ways to combat “skyrocketing” grocery bills.
“Saving money in some areas allows you to balance out rising costs in others,” he said.
The idea is not to increase budgets or raid retirement funds just to deal with rising prices, financial advisers say.
Thrivent’s Stukenberg tells clients near retirement to hunt for hidden and unused employee benefits at work that can free up money each month. She also refers struggling clients to the National Council on Aging’s free BenefitsCheckup website to find programs that can help slash bills in all sorts of areas.
La Donna Meinecke hopes to retire in two years from her long-time job at HealthPartners, so the Minneapolis resident is consolidating car errands to save on gas, figuring which beloved magazine subscriptions and cellphone apps to cancel, and scouring Sunday circulars for deals.
This month, buy one, get one free deals for chicken and eggs at Lunds & Byerlys saved her $8, enough for gas at Costco, where Meinecke also does bulk shopping to save on groceries.
“I can get by. But I just need to start thinking about inflation and really start preparing for retirement,” she said. “You have to be mindful.”