After two years of near-constant tumult — emotional, personal, and economic — and seemingly endless pandemic planning, I thought 2022 might be the year things turned around.
And at first it seemed like that was exactly what was going on. My girlfriend’s Covid era pay cut was reversed so we were hoping to loosen the purse strings. After three years in the same role, my hard-earned raise began, which meant we could plan trips for wedding season and maybe even luxury vacations. And, more importantly, after years of saving for a down payment, we finally felt ready to browse apartments for sale and plan some big life changes.
Then we noticed a spike in our grocery bill. “Since when do grapes cost so much? I remember thinking as I was checking out our usual neighborhood market. After that, we saw an increase in travel costs; no easy and airy vacation planning for us. Then, most dreaded of all, we heard from our landlord: They were raising our rent by $100 a month.
Suddenly, my raise didn’t seem like a raise at all, and my girlfriend’s restored salary didn’t go that far. “So much for it to be our year,” she said bitterly. The optimist in me wanted to cheer him up, but the business reporter in me knew better. Inflation had finally kicked in to smash our hoped-for plans.
Like nothing before
We were not alone; inflation has destroyed the 2022 goals of almost everyone I know. In April, the annual inflation rate stood at 8.3%, after hitting a four-decade high of 8.5% in March, according to the Bureau of Labor Statistics. People are tightening their budgets, skimping on household basics and, like me, are struggling to plan for the future.
The change is particularly alarming for young people like me. As people who have never experienced such high inflation in our lifetimes, we don’t really know how to cope, other than cutting back where we can and absorbing price increases we can’t avoid.
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“There’s so much emotional energy that makes our psyche adapt to this thing that we’ve never experienced before, and we’re dealing with it multiple times a day, every time we consume something,” says Meg. Bartelt, certified financial planner and founder of Flow Financial Planning in the Seattle area. “It’s important to recognize ‘Yeah, that sucks.’ ”
After a lifetime of low interest rates, the savings my girlfriend and I have managed to amass – that we were once so proud of! – look skinny and risky. While chatting with my friends, I discovered that this was a common experience. “I feel bad for these millennials and younger,” says RA Farrokhnia, associate professor of business and economics at Columbia University. “They had the 2008 financial crisis, then a few good years, then the pandemic and rising inflation and rising house prices. It’s like this generation can’t take a break. The frustration they feel is therefore justified.
Salaries, pale economies
Earlier this year, Rachel Yoke, a 34-year-old higher education worker in the Pittsburgh area, thought she had found a way out of that frustration. She had worked two jobs during the pandemic to make ends meet, but then got a new, better paying job and felt optimistic about the future. Hopefully the new salary would open up more room in his budget, allowing him to replenish his savings and even plan trips with friends.
But then she noticed something was happening in her budget spreadsheet. Every one of her expenses increased, especially in the grocery and transportation categories, though she didn’t make big changes to her lifestyle. She felt her heart tighten.
“I’ve worked so hard to get this new job and make this change. Why am I not making as much progress as I thought I would? she says. “If I were to lose my job or be unemployed, I in real trouble, because I don’t currently have any savings that would take me very far – maybe a month? I know a lot of people in America are in that position.
With prices rising so rapidly, any wage gain is negated by an overall increase in the cost of living, says John Beshears, associate professor of business at Harvard University. “A salary of 3% [increase] in this environment is a pay cut, in real terms,” he says. “Should people demand a 10% raise if they want to keep increasing their real wages? The answer is yes.”
To add insult to injury, any savings in the bank won’t pay off as much during times like these. Inflation eats away at the value of stored cash, so in addition to the impact on their purchasing power, young people may feel concerned about their chances of building up future wealth, says Professor Farrokhnia.
Ways to cope
So maybe it won’t be “our year”, as my girlfriend so sadly declared. Unless one of us lands a new job, a big bonus or a raise, or a fairy godmother brings us a financial boon, we probably won’t be able to increase our budget as much as originally planned, and for now, we have put our house search on hold. We also discussed moving our savings from the savings account to an investment account because in times of inflation we learn that our money has to keep up, but my risk averse girlfriend is still getting used to the idea.
Beyond short-circuiting our immediate goals, this period has also changed the way we think about the future. We had planned so many things – pay cuts, emergency spending, high housing prices – but we still hadn’t planned for an overall price spike like the one eating away at our plans. What shall we do now?
“You have to recognize a complete inability to know what will happen in the future,” Ms Bartelt says. “It’s inflation we’re talking about now, but it could be a stock market crash, it could be a pandemic shutting down the world. So you’re planning these things without knowing the details, just creating a big margin for error. If your plan only works if things happen exactly within a very narrow range of possibilities, then that plan is pretty flimsy.
But there are things to help those of us whose plans have been hampered by this unforeseen crisis. First, we can focus on the things that are going well: we both still have our jobs and our health, and while our savings won’t serve us as well during a time of high inflation, the money is still there, as is our proven ability to build it.
“If you don’t back down when inflation spikes, that’s a huge accomplishment,” says Bartelt. “I think you should congratulate yourself, because when circumstances change for the better, not backing down, if you keep the same habits, turns into ‘Oh, now I can move forward.’ ”
For now, says Bartelt, just focus on your success. “Sometimes in our finances, we can’t move forward,” she says. “What we need to focus on is sustainability. Maybe this is one of those times.
Ms. Carpenter is a reporter for the Wall Street Journal in New York. Write to [email protected]
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