Can I Afford to Have a Hot Girl Summer?

Save more, spend smarter, and make your money go further

After a year spent indoors, everyone wants to have a hot girl summer in 2021. But when your financial situation is still recovering from the pandemic, can you really afford to?

Whether you’re struggling to get by or just looking to save a few bucks, use these tips to go big this summer – without going over budget.

Cash in rewards points

Millions of Americans stocked up on toilet paper, hand sanitizer, and disinfectants during the pandemic. But many consumers inadvertently hoarded another item: credit card rewards points.

If you’re planning to reunite with high school friends or travel to a bachelorette party, cash in your points and miles to save on the trip. If you had to cancel a vacation due to the pandemic, redeem any remaining travel credit.

If you have more rewards points than you need, you may be able to redeem them for cash or as a statement credit on your card, which you can then use toward your trip.

Don’t have any rewards cards? Now may be a good time to sign up. Chase is currently offering a 100,000-point bonus for new cardholders who apply for the Chase Sapphire Preferred card, or a 60,000-point bonus for the Chase Sapphire Reserve card. Depending on where you’re going, that’s enough for a couple of flights or hotel stays.

Invite friends over for a swap

My new favorite tradition with friends is to host a swap. Everyone brings items they no longer need, and we take turns picking new-to-us items. Last time I got three dresses, a pair of Madewell overalls, a curling iron, and a dog bed.

You’re not limited to clothes at a swap. I encourage my friends to bring anything, including books, kitchenware, makeup and home decor. It’s a free way to get new items, and it encourages you to declutter your house.

Drink like a college student

Back in college, most people would have a couple drinks at home before venturing to the bars. If you’re going out with friends, consider starting with a drink or two at home.

Another money-saving trick is to eat a full meal before you go out, so you’re not tempted to grab pricey appetizers. If you’re getting drinks with your friends, limit yourself to basic cocktails instead of specialty cocktails, or stick to the draft list instead of buying a fancy bottle.

Create rules for yourself

Now that the world is opening up, it’s tempting to throw your budget away and treat yourself to everything you missed during the pandemic. Before doing that, set up some ground rules to keep yourself from going overboard.

For example, make a rule that if you’re getting dinner or brunch with friends, you won’t get take-out that week. These basic rules will help you spend less without having to give up what really matters.

Use a cash budget

Instead of bringing your credit card with you on a night out, only take the amount of cash you want to spend. You can still use your phone to order an Uber or Lyft, but you won’t have the temptation of a credit card. Decide how much you’re comfortable spending and only bring that amount.

Join a sports league

Group sports leagues like softball, soccer, or kickball are one of the most affordable ways to hang out with friends and get some exercise at the same time.

Most group leagues cost between $50 and $75 a person, depending on the sport, and usually last around six weeks. Sometimes you’ll even get a discount at a local bar where you can hang out afterwards.

Plan a budget-friendly trip

For the past few years, my college friends and I have met up every summer at my in-law’s lake house. The house is located near a small town in Indiana, only a few hour’s drive for most of us.

Instead of picking a more exotic locale, we prioritize saving money. It’s free to stay there, and we split the cost of groceries. I usually spend about $100 on gas, food, and drinks for a three-day trip.

If you’re considering a getaway with friends, get creative. Don’t automatically book a trip to Vegas or Miami. Pick a spot that’s close enough to drive, or near a popular airport where flights will be less expensive.

If you’re not lucky enough to have access to a family vacation home, look on Airbnb and VRBO for affordable destinations. Find a house with a stocked kitchen so you can cook most of your meals.

Pro tip: Use Mint’s free travel budget calculator to help you plan your next adventure.

Budget for it

When the world shut down last year, most of us got used to spending less on gas, bars, and new clothes. But as things start to open up, you may find your spending ramping back up.

Use this time to revise your budget and allocate money toward restaurants, rideshare services, and new outfits. As things return to normal, you may have to change your budget a few times before finding a happy balance. Give yourself some grace, as circumstances may change rapidly.

If you find budgeting for one month at a time difficult, give yourself a weekly allowance to use for non-essential purchases. Redirect some of your pandemic habits, like ordering take-out a few times a week, to your rediscovered social habits, like getting dinner with your friends.

Talk to your friends

While some consumers survived the pandemic without getting laid off, millions of Americans lost their jobs and remained unemployed for months. So while your friends may be ready to party, you might be focused on rebuilding your savings.

If you suffered financially during the pandemic, you may not be able to keep up with your friends this summer. Even though it may seem awkward to discuss your money problems openly, it’s better than making excuses.

If you lie about why you can’t hang out, your friends will think you’re avoiding them. But if you’re honest, they may accommodate you by suggesting budget-friendly activities. Give them the chance to understand, even if it means having an uncomfortable conversation. Who knows – one of them might be struggling as well, but too afraid to speak up.

Save more, spend smarter, and make your money go further

Zina Kumok

Zina Kumok is a freelance writer specializing in personal finance. A former reporter, she has covered murder trials, the Final Four and everything in between. She has been featured in Lifehacker, DailyWorth and Time. Read about how she paid off $28,000 worth of student loans in three years at Conscious Coins. More from Zina Kumok

Source: mint.intuit.com

How to Build a Capsule Wardrobe

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There are so many fashion trends that come and go; but what does that mean for your pockets? You’re left overspending, making impulse decisions, or buying items because others are doing the same thing. Remember, fashion is a personal experience. It’s unique to each one of us as we all express our personal style in different ways. The cost of living along with everyday essentials are on the rise; what are a few ways to remain stylish while making sure it’s budget friendly? Use the following tips to build a classic wardrobe that’s always on trend – no matter the occasion.

What is a capsule wardrobe?

A capsule wardrobe consists of a set of tops, bottoms, outerwear, shoes, and various accessories that are versatile and can be mixed based on occasion to create a multitude of looks. The focal point of a capsule wardrobe is to own more on quality pieces that can transcend through the various seasons.

Ranging from between 25 – 75 pieces (or more; just depends on your preference) the key is to be able to identify all your clothing items easily and severely cut down on the time it takes to decide what you’re going to wear from day-to-day. Your new wardrobe should be able to reflect you personally while also remaining super functional.

Step 1: Take an assessment of your closet

Before we get started with hitting our favorite stores or buying everything online; take note of what’s currently in your closet. Begin to create a few mounds of clothes – keep, purge, and repurpose piles. What are the items that no longer fit? What items don’t necessarily fit your personal style anymore?

Be honest with yourself during this exercise. For example, if the clothes fit but you haven’t worn them within the past six months, chances are you may not be in love with them like you thought during the initial purchase. Also consider gently used clothes that are still in good shape to donate or sell to a consignment shop. The funds made from items already in your closet can go toward new pieces for your capsule wardrobe! Consider your current lifestyle as well – are you self-employed, working a 9-5 or a stay-at-home parent? All of this will impact your personal decisions as it relates to clothing.

To streamline this process even further, take pictures of the items you’re going to keep and have them all in one album on your phone. This way, you’re able to track each piece you have before making any new purchases. We often believe we have nothing to wear when it’s time to get dressed – when we really are just unsure of what we have. Reprogram your mind to utilize what you already have versus spending out of impatience and frustration.

Step 2: Identify your personal style and experiment

Social media exposes us to so many people, their personal styles and fashion inspirations. When you take a step back from everyone else’s thoughts and opinions; who inspires you? Create a mood board with outfits that pique your interest, that are classic in nature and are flattering to your body type. Ask yourself the following questions:

  • Are these pieces something I’m going to love years from now?
  • Will I feel confident no matter the occasion?
  • Does this fit my work and personal lifestyle?
  • Am I committed to investing in quality items?

Answering these truthfully are a great baseline to tailoring your wardrobe for you – regardless of what’s ever changing on social media. Next is the fun part; begin experimenting with what’s in your closet! Make sure all your items are in one area in your closet or buy a fashion rack so you’re able to easily identify your growing capsule wardrobe. Using either of these methods should not only cut down your decision time when getting dressed, it gives you the opportunity to create multiple looks with the same pieces. The main goal is functionality – make sure it’s adaptable to your lifestyle and its’ demands.

Step 3: Spend wisely and fight the urge against fast fashion

Quality over quantity is the mantra to live by when wanting to build a capsule wardrobe. Think about it in this way – how can you remain timeless while also having a distinct personal style?

When you’re looking for items to add to your capsule, focus on durability and quality. There’s no point in buying a lot of clothes that can’t withstand a few cycles in the washing machine (lack of quality) or shopping for one specific event (non-functional pieces). Refer to the pictures that’ve been taken of your current items so they’re handy during any shopping trip. Don’t forget to leverage consignment shops or thrift stores during this process. Bulkier, yet timeless items such as trench coats or vests with neutral colors can often be found. If you find that shopping for each season initially is too difficult, begin offseason shopping. During the summer, fall and winter clothes can be reduced heavily in price; use these opportunities as a cost savings.

Step 4: Take your time and have fun!

Transitioning from your current wardrobe to a fully functional one isn’t easy. Don’t overwhelm yourself with trying to finalize each piece in your closet over a designated amount of time. Not only is that not realistic, but it’s also expensive (which partly defeats the purpose) and stressful. This should be a fun, experimental, yet intentional time.

Take note of the outfits you enjoy the most. What about them makes you confident? You’ll discover you love every item in your closet versus simply dealing with pieces to complete an outfit. Take a note of items that may be currently missing from your wardrobe that can be worn at least three ways.

Taking this into account, you’ll be able to add those items into your rotation easily. Every purchase should be strategic and purposeful. While others are chasing trends that change every season, you’ll be peaceful and empowered with a wardrobe distinctly curated by you and your wants.

Save more, spend smarter, and make your money go further

Marsha Barnes

Marsha Barnes is a finance guru with over 20 years of experience dedicates her efforts to empower women worldwide to become financially thriving. Financial competency and literacy are a passion of Marsha’s, providing practical information for clients increasing their overall confidence in their personal finances. More from Marsha Barnes

Source: mint.intuit.com

Stock Market Today: Stocks Finish Lower as Traders Mull Recession Odds

The potential for the U.S. to slip into recession was the topic du jour Monday as stocks kicked off the week with a wobbly, uneven session.

Over the weekend, former Goldman Sachs chief Lloyd Blankfein told CBS’ Face the Nation that recession was “a very, very high risk factor.” That opinion was met by a number of other calls Monday morning.

Wells Fargo Investment Institute, for instance, says “our conviction is that the chances of an outright recession in 2022 remain low” but believes odds are growing that 2023 could see an economic contraction. UBS strategists say the chances are different depending on where you look – their global economists say “hard data” points to a sub-1% chance of recession over the next 12 months, but the yield curve implies 32% odds.

“There’s no crystal ball to predict what’s next, but historical trends can come into play here. With the [S&P 500] closing 15% below its weekly record, there’s only been two times in the past 60-plus years that the market didn’t fall into bear territory after a similar drop,” adds Chris Larkin, Managing Director of Trading at E*Trade. “This doesn’t mean it’s bound to happen, but there is room for potential downside.”

Larkin says to keep an eye on major retail earnings this week – which will kick off in earnest with Walmart’s Tuesday report – to get a pulse check on the American consumer.

Sign up for Kiplinger’s FREE Investing Weekly e-letter for stock, ETF and mutual fund recommendations, and other investing advice.

Monday itself was a fairly quiet affair. Exxon Mobil (XOM, +2.4%) and Chevron (CVX, +3.1%) were among a number of plays from the energy sector (+2.7%) that popped after U.S. crude oil futures jumped another 3.4% to $114.20 per barrel.

Twitter (TWTR, -8.2%) shares dropped after Tesla (TSLA, -5.9%) CEO Elon Musk spent the weekend questioning how much of Twitter’s traffic comes from bots. Wedbush analyst Daniel Ives said the move feels more like a “‘dog ate the homework’ excuse to bail on the Twitter deal or talk down a lower price.” TWTR stock has now given up all its gains since Musk announced his stake in the social platform.

The major indexes finished an up-and-down session with mostly weak results. The Dow Jones Industrial Average managed to eke out a marginal gain to 32,223, but the S&P 500 declined 0.4% to 4,008, while the Nasdaq Composite retreated 1.2% to 11,662.

Also worth noting: Warren Buffett’s Berkshire Hathaway will file its quarterly Form 13F soon. Check back here tonight as we examine what Buffett has been buying and selling. 

stock chart for 051622stock chart for 051622

Other news in the stock market today:

  • The small-cap Russell 2000 closed out the session with a 0.5% dip to 1,783.
  • Gold futures gained 0.3% to settle at $1,814 an ounce.
  • Bitcoin was off 1.6% to $29,551.92 (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
  • JetBlue Airways (JBLU, -6.1%) ramped up its hostile takeover attempt of Spirit Airlines (SAVE, +13.5%) on Monday, urging SAVE shareholders to vote against a buyout offer from fellow low-cost air carrier Frontier Group Holdings (ULCC, +5.9%). JBLU last month offered to buy Spirit Airlines for $33 per share – a premium to the $21.50 per share ULCC offered in February – but SAVE’s board of directors rejected the bid citing concerns over regulatory approval. JBLU followed up in early May with an “enhanced superior proposal,” including paying a $200 million, or $1.80 per SAVE share, reverse break-up fee should regulators block the deal.
  • Warby Parker (WRBY) fell 5.3% after the eyeglass maker reported a loss of 30 cents per share in its first quarter. This was much wider than the per-share loss of 3 cents the company reported in the year-ago period and missed the consensus estimate for breakeven on a per-share basis. Revenue of $153.2 million also fell short of analysts’ expectations. WRBY did maintain its full-year revenue guidance of $650 million to $660 million. “We remain cautiously optimistic on shares as WRBY continues to show ability to grow the top line, open new stores, and is recession resistant as a lower cost option for non-discretionary spend,” says CFRA Research analyst Zachary Warring (Buy). “We see the company leveraging SG&A to become profitable in the second half of 2022.”

Check Out Europe’s Dividend Royalty

If you’re seeking out more stable opportunities amid an uncertain U.S. market … well, the rest of the world is admittedly looking pretty shaky, too. But that doesn’t mean there aren’t a few morsels worth a nibble. 

BCA Research notes that while there’s negative news around the globe, “European benchmarks already discount a significant portion of the negative news.” And looking ahead, inflation there is expected to peak over the summer “as the commodity impulse is decelerating” – that should help stagflation fears recede and help European shares.

Graham Secker, Morgan Stanley’s chief European and U.K. equity strategist, chimes in that his firm remains “overweight [European] stocks offering a high and secure dividend yield.”

We’ve previously highlighted our favorite European dividend stocks, which on the whole tend to produce higher yields than their U.S. counterparts.

But we’d also like to shine the spotlight on Europe’s twist on an American income club: the Dividend Aristocrats. The S&P Europe 350 Dividend Aristocrats have somewhat different qualifications than their U.S. brethren, but in general, they’ve proven their ability to provide stable and growing dividends over time.

Read on as we look at the European Dividend Aristocrats.

Source: kiplinger.com

Brace Yourself: The Price Tag on Cars is About to Go UP!

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If you’ve done any car shopping lately, this will come as no surprise: automobile prices are going through the roof. Unfortunately, that trend doesn’t appear to be slowing down any time soon.

We’ll walk you through the factors driving this sharp increase, and give you some tips on how to avoid blowing up your budget when buying a car.

How Car Prices are Changing

Research from CarGurus.com found that used car prices are up more than 30% from June 2020. Prices have been steadily rising since the Covid-19 pandemic, and numbers have never been this high.

Not all brands are increasing at the same rate. For example, Tesla has only increased by 6% in the past year while Ram trucks have increased 40.5%. You can find a complete list of car manufacturers and their year-over-year increases here.

Why Car Prices are Going Up

Global supply chains were disrupted during the pandemic last year, and many car manufacturers did not produce as many vehicles as they normally would. The influx of stimulus checks and mass avoidance of public transit caused more people to buy cars, further limiting the available car supply.

Since 2020, there has been a global chip shortage causing massive delays for automakers. The average car can have hundreds of these chips, which explains why automobile production has slowed down even as other industries have begun to ramp back up.

How to Budget for Higher Car Prices

If you need to buy a car right now, prepare to pay higher prices than you might have paid a year or two ago.

Here’s how to plan ahead:

Look at your overall budget

Whether you’re planning to buy a car in cash or take out a loan, you should look at your budget to see how much you can afford to pay.

Because prices for other goods are also rising, it’s important to allow some flexibility in your budget. Don’t buy the most expensive car you can afford, and don’t raid your savings to pay for it. While the economy seems to be rebounding, you should still keep a sizable emergency fund in case of future layoffs or furloughs.

Compare interest rates

According to Bankrate.com, interest rates for auto loans are the lowest they’ve been since 2015. If you’re getting a car loan, one of the most important factors is the interest rate and APR. The interest rate affects your monthly payments and the total amount of interest paid over the life of the loan.

Start by getting quotes from your current bank, and then get outside quotes from other banks, credit unions, and auto lenders. Compare the APR and not just the interest rate. The APR is the more comprehensive number, reflecting both the interest rate and any fees.

Get the most for your trade-in

Because used car prices are going up, you will likely earn more for your trade-in than you would have in the past. Look up your car’s value on Kelley Blue Book and Edmunds.com to see what it’s worth.

Then, maximize your trade-in value by getting multiple quotes from dealerships and listing your car for sale on sites like eBay, Craigslist, and Cars.com. You’ll earn more from a private seller but may have to deal with flaky buyers. If you’re selling a car to an individual, you’ll also need to verify that the check or cash you receive is legitimate.

When selling to a dealership, try to leverage quotes from multiple dealers against each other to create a bidding war. Remember that inventory for used cars is low, so many companies are willing to pay more than you might expect for a used car.

Get a longer-term loan

If you can’t afford to pay for the car in cash, a car loan is your next best option. Car loan terms range from 24 to 84 months, and interest rates generally increase as the term gets longer. Because car prices are higher right now, you may need a longer loan term to end up with monthly payments you can comfortably afford. Use a car loan calculator and play around with the numbers to find your upper loan limit.

Here’s how the monthly payments can change depending on the term. Let’s say you receive two quotes from an auto lender for a $20,000 car. The first option is a three-year term with a 5% interest rate and a $582 monthly payment. The second option is a six-year term with a 6% interest rate and a $331 monthly payment.

You review your budget and determine that the maximum amount you can afford each month is $350. In this case, you would be better off choosing the six-year term with the higher interest rate.

It’s better to have a payment you can easily make every month than a lower interest rate and less wiggle room in your budget. You can always make extra payments on the car loan to pay it off faster if your income increases. Most auto lenders don’t charge a prepayment penalty, so there’s no extra fee if you repay the loan ahead of schedule.

Budget for car insurance

If you’re about to buy a new car, call your car insurance provider and ask them what the new monthly premium will be. In most cases, buying a newer car will increase your premiums because it will cost more to replace if there’s an accident.

But if your new car has additional safety features that could reduce the chances of an accident, then your premiums may not change as much. Still, it’s better to find out now what the premium will be instead of after you’ve bought the car.

Bottom Line

It’s impossible to predict where prices may be in the future. If you don’t need to buy a car right now, you might be better off waiting a few months to see if prices cool off.

Save more, spend smarter, and make your money go further

Zina Kumok

Zina Kumok is a freelance writer specializing in personal finance. A former reporter, she has covered murder trials, the Final Four and everything in between. She has been featured in Lifehacker, DailyWorth and Time. Read about how she paid off $28,000 worth of student loans in three years at Conscious Coins. More from Zina Kumok

Source: mint.intuit.com

Is Recession Coming? Watch These Signs

recession market scare crash downturn stock business men
By Andrey Burmakin / Shutterstock.com

There’s no time stamp on when recessions pop up, or how long they last. Our last recession was two months long at the onset of the COVID-19 pandemic in 2020, making it the shortest on record.

The one before that was the Great Recession starting in 2007 and lasting 18 months, the longest downturn since World War II.

If the stock market and economy are keeping you on the edge of your seat, you can look for signs of a recession before it hits. That can help you determine whether you should start preparing for a recession, and the act of getting your finances ready for a possible downturn should give you some peace of mind.

An inexact science

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Stock-Asso / Shutterstock.com

Before we dive into the possible warning signs of a recession, it’s worth noting that predicting a recession is not an exact science.

So, while the following warning signs historically have served as indicators that a recession might be on the horizon, that doesn’t mean they are foolproof. The economy is dynamic, and there is no list of indicators that have preceded every past recession.

Still, the following indicators tend to be a good place to start looking if you’re worried about whether a recession lies ahead.

Sign No. 1: The yield curve inverts

Positive yield curve
hafakot / Shutterstock.com

Typically, long-term bonds pay more than short-term bonds, as illustrated above. This makes sense: If you agree to tie up your money for longer periods, you should be paid more for your trouble. This is why a five-year certificate of deposit (CD) pays more than a one-year CD.

Rarely, however, the reverse is true: Long-term bonds start paying less than short-term bonds. When that happens, a recession often follows. In fact, this situation, known as an inverted or negative yield curve, has proven a highly accurate recession predictor.

Why would long-term bonds ever pay less than short-term bonds? The nation’s central bank, the Federal Reserve — or “the Fed” for short — controls short-term rates, but the market controls the rates on longer-term securities.

The Fed can raise short-term rates, which is exactly what they started doing in March 2022, for the first time since 2018. But if investors start thinking things don’t look so good in the economy, they keep their powder dry by buying long-term bonds. The more they buy and bid up the price, the lower the rates on these securities go.

The yield curve did dip into negative territory in late March 2022. It quickly recovered, but it’s worth noting that it was the first time the yield curve turned negative since 2019 and, before that, 2006.

What to watch: You can find Treasury yields on the U.S. Treasury Department’s website. CNBC also tracks in real time the spread, or difference, between the yields on two-year and 10-year Treasurys.

Sign No. 2: The Leading Economic Index slips

Jenga game at risk of slipping
88studio / Shutterstock.com

The Conference Board’s Leading Economic Index (LEI) is one predictor of global economic health. The Conference Board, a nonprofit research group, describes the index as one of “the key elements in an early warning system to signal peaks and troughs in the global business cycle,” with the LEI specifically anticipating turning points in the business cycle.

Monthly dips in the Leading Economic Index aren’t alarming. However, year-over-year drops in the benchmark have been followed by recessions in the past.

The LEI increased by 0.3% from February to March, and by 1.9% over the six months leading up to March, so there’s no reason for concern based on this indicator right now.

What to watch: Keep an eye on Conference Board press releases or media coverage of the index.

Sign No. 3: Interest rates rise

Federal Reserve
Orhan Cam / Shutterstock.com

Government monetary policy can be another economic bellwether. We’ll explain what to watch, but first, a quick refresher on how it works.

The Federal Reserve influences the economy by using a couple of tools. One of those tools is control over short-term interest rates via the target federal funds rate. If the economy is in the doldrums, it can lower the federal funds rate to encourage consumers and businesses to borrow, buy and invest, which stimulates the economy. That’s why this rate was kept near zero for years following the Great Recession that began in December 2007.

On the other hand, if the economy is growing too fast, that can lead to rising prices, otherwise known as inflation. To cool things down, the Fed raises the federal funds rate, which serves to put the brakes on the economy by discouraging both consumers and businesses from borrowing and spending as much.

While interest rates don’t directly affect the stock market, if businesses have to pay more in interest, that hurts their profits, which will ultimately be reflected in a lower stock price.

Also, as rates rise, investors often sell stocks, driving prices lower. Why do they sell? Think about it: If you can earn high interest from insured bank accounts or guaranteed Treasury bonds, why take a chance on stocks?

Again, the Fed resumed raising the federal funds rate in March 2022, marking the first rate hike since 2018. The hike in May — a half-point — was the largest increase since 2000.

What to watch: The Federal Reserve’s Federal Open Market Committee posts statements, which include any votes to change the federal funds rate, after each of its regularly scheduled meetings. The meetings are also widely covered by the financial media.

Sign No. 4: Consumer sentiment falls

Upset shopper at a grocery store
C.Snooprock / Shutterstock.com

Another economic indicator published by the Conference Board, the Consumer Confidence Survey, monitors everything from Americans’ buying intentions and vacation plans to their expectations for inflation, stock prices and interest rates.

After an uptick in March, consumer confidence fell slightly in April. The Consumer Confidence Index was at 107.3 for the month, down from 107.6. During the recession at the beginning of the COVID-19 pandemic, the index was less than 90.

Fluctuation is normal, especially as economic conditions shift. The pandemic, the rising costs of products and the war in Ukraine can change how people feel about the economy from month to month. But if consumer confidence continues to drop, that could be a sign of a looming recession.

What to watch: The Consumer Confidence Survey is updated monthly. Track press releases for it on the Conference Board’s website. The survey is also widely covered in the media.

Sign No. 5: Business confidence cools

Upset businessman holding his head at his computer
Rido / Shutterstock.com

Like consumer confidence, business confidence can shed light on the direction of the economy.

The Conference Board’s Measure of CEO Confidence remained in positive territory — 57 — in the first quarter of 2022. (The board considers measures of more than 50 points as positive, and lower readings as negative.) But this measure marked the third consecutive quarter of decline.

CEOs’ assessment of the current general economic conditions, and their expectations for the near future, also declined.

The outlook of small-business owners isn’t any rosier, according to the National Federation of Independent Business’ Small Business Optimism Index.

In March, inflation overtook labor quality as the top problem among small businesses. In fact, the share of owners raising their average selling prices reached its highest level in the survey’s 48-year history.

Moreover, the share of owners who expect better business conditions over the next six months fell to its lowest level in the survey’s history.

What to watch: Business confidence gauges like the Measure of CEO Confidence and CFO Survey are updated quarterly. The Small Business Optimism Index is updated monthly.

Sign No. 6: Vanguard’s risk forecast worsens

Vangaurd
Casimiro PT / Shutterstock.com

Vanguard is one of the biggest asset management firms in the world, so its economic outlooks can help paint a picture of how to monitor fluctuation in the economy.

Before the recession that started in late 2007, Vanguard’s six-month forecast had said the probability of a recession in six months was greater than 40%, according to The New York Times.

The firm’s forecast for 2022 — subtitled “Striking a better balance” — was overall optimistic, if cautiously so:

“While the economic recovery is expected to continue through 2022, the easy gains in growth from rebounding activity are behind us. We expect growth in both the U.S. and the euro area to slow down to 4% in 2022.”

In March, however, Vanguard downgraded its 2022 estimated growth for the U.S. from 4% to 3.5% — which is where it remained going into May.

What to watch: Vanguard posts its monthly market perspectives on its “Our Insights” webpage and issues press releases about its annual outlooks.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

What Is Inflation (Definition) – Causes & Effects of Rate on Prices & Interest

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Additional Resources

People have always grumbled that a dollar doesn’t go as far as it used to. But these days, that complaint is truer than ever. No matter where you go — the gas station, the grocery store, the movies — prices are higher than they were just a month or two ago.

What we’re seeing is the return of a familiar economic foe: inflation. Many Americans alive today have never seen price increases like these before. For the past three decades, inflation has never been above 4% per year. But as of March 2022, it’s at 8.5%, a level not seen since 1981.

Modest inflation, like what we had up through 2020, is normal and even healthy for an economy. But the rate of inflation we’re seeing now is neither normal nor healthy. It does more than just raise the cost of living. It can have a serious impact on the economy as a whole. 

Recent inflation-related news:


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  • In March 2022, the U.S. inflation rate hit a 40-year high of 8.5%. 
  • Prices for gasoline have increased nearly 50% over the past year.
  • Retail giant Amazon has added a 5% fuel and inflation surcharge for sellers.
  • The Federal Reserve is planning a series of interest rate hikes to cool the overheated economy.

What Is Inflation?

Inflation is more than just rising prices. Prices of specific things we buy, from a gallon of milk to a year of college tuition, rise and fall all the time. These price increases affect individual consumers’ lives, but they don’t have a big impact on the entire economy.

Inflation is a general increase in the prices of goods and services across the board. It drives up prices for everything you buy, from a haircut to a gallon of gas. Or, to put it another way, the purchasing power of every dollar in your pocket declines.

Most of the time, inflation doesn’t disrupt people’s lives too much, because prices rise for labor as well. If your household spending increases by 5% but your paycheck increases by 5% at the same time, you’re no worse off than before.

But when prices rise sharply, wages can’t always keep up. That makes it harder for consumers to make ends meet. It also drives them to change their spending behaviors in ways that often make the problem worse.


Causes of Inflation

Inflation depends on the twin forces of supply and demand. Supply is the amount of a particular good or service that’s available. Demand is the amount of that particular good or service that people want to buy. More demand drives prices up, while more supply drives them down. 

To see why, suppose you have 10 loaves of bread to sell. You have 10 buyers who want bread and are willing to pay $1 per loaf. So you can sell all 10 loaves at $1 each.

But if 10 more buyers suddenly enter the market, they will have to compete for your bread. To make sure they get some, they might be willing to pay as much as $2 per loaf. The higher demand has pushed the price up.

By contrast, if another seller shows up with 10 loaves of bread, the two of you will be competing for buyers. To sell your bread, you might have to lower the price to as little as $0.50 per loaf. The higher supply has pushed prices down.

Inflation results from demand outstripping supply. Economists often describe this as “too much money chasing too few goods.” There are several ways this kind of imbalance can happen.

Cost-Push Inflation

Cost-push inflation happens when it costs more to produce goods. To go back to the bread example, cost-push inflation might happen because a wheat shortage makes flour more expensive. It costs you more to make each loaf of bread, so you can’t afford to bake as much.

As a result, you bring only five loaves to the market. But there are still 10 customers who want to buy bread, so they must pay more to get their share. The higher cost of production drives down the supply and thus drives up the price.

In the real world, cost-push inflation can result from higher costs for anything that goes into making a product. This includes:

  • Raw Materials. The wheat that went into your bread is an example. Higher-cost wheat means higher-cost flour, which means higher-cost bread.
  • Transportation. In today’s global economy, materials and finished goods move around a lot. Transporting products requires fuel, which usually comes from oil. So whenever oil prices go up, the price of other goods rises as well. 
  • Labor. Another factor in production cost is labor. When schools closed during the COVID-19 pandemic, many parents had to stop working to care for their children. That created a worker shortage that drove prices up.

Demand-Pull Inflation

The opposite of cost-push inflation is demand-pull inflation. It occurs when consumers want to buy more than the market can supply, driving prices up.

Typically, demand-pull inflation results from economic growth. Rising wages and lower levels of unemployment put more money in people’s pockets, and people who have more money want to spend more. If the booming economy hasn’t produced enough goods and services to match this new demand, prices rise.

Other causes of demand-pull inflation include: 

  • Increased Money Supply. Another way people can end up with more money in their pockets is because the government has put more money in circulation. Governments often do this to stimulate a weak economy or to pay off past debts. But as the money supply increases, the purchasing power of each dollar shrinks. 
  • Rapid Population Growth. When the population grows rapidly, the demand for goods and services grows also. If the economy doesn’t produce more to compensate, prices rise. In Europe during the 1500s and 1600s, prices soared as the population grew so fast that agriculture couldn’t keep up with the new demand.
  • Panic Buying. Early in the COVID pandemic, consumers started buying extra groceries to fill their pantries in preparation for a lockdown. This led to shortages of many staple products, like milk and toilet paper. As a result, prices for those goods went up.
  • Pent-Up Demand. This occurs when people return to spending after a period of going without. This often happens in the wake of a recession. It also occurred as pandemic restrictions eased and people returned to enjoying movies, travel, and restaurant meals.

Built-In Inflation

When consumers expect prices to be higher in the future, they often respond by spending more now. If the purchasing power of their savings is only going to fall, it makes more sense to take that money out of the bank and use it on a major purchase, like a new car or a large appliance.

In this way, expectations of high inflation can themselves lead to inflation. This type of inflation is called built-in inflation because it builds on itself. 

When workers expect the cost of living to rise, they demand higher wages. But then they have more to spend, so they spend more, driving prices up. This, in turn, reinforces the belief that  prices will keep rising, leading to still higher wage demands. This cycle of rising wages and prices is called a wage-price spiral.


Effects of Inflation

Inflation does more than just drive up the cost of living. It changes the economy in a variety of ways — some harmful, others helpful. The effects of inflation include:

  • Higher Wages. As prices rise with inflation, wages typically rise as well. This can create a wage-price spiral that drives inflation still higher.
  • Higher Interest Rates. When the dollar is declining in value, banks often respond by raising interest rates on loans. The Federal Reserve also typically raises interest rates to cool the economy and rein in inflation, as discussed below.
  • Cheaper Debt. Inflation is good for debtors because they can pay off their debts with cheaper dollars. This is most useful for loans with a fixed interest rate, such as fixed-rate mortgages and student loans.
  • More Consumption. Inflation encourages consumers to spend money because they know it will be worth less later. All this spending keeps the economy humming, but it can also drive prices even higher.
  • Lower Savings Rates. Just as inflation encourages spending, it discourages saving. Higher interest rates can counter this effect, but they often don’t rise enough to make a difference.
  • Less Valuable Benefits. High inflation is worse for people on a fixed income. They face higher prices without higher wages to make up for them. Benefits such as Social Security change each year to adjust for inflation, but higher benefits next year don’t help when prices are rising right now.
  • More Valuable Tangible Assets. Inflation reduces the purchasing power of the dollars you have in the bank. Tangible assets like real estate, however, gain in dollar value as prices rise.

Measuring Inflation

The most common measure of inflation is the Consumer Price Index, or CPI. The Bureau of Labor Statistics (BLS) determines the CPI based on the cost of an imaginary basket of goods and services. BLS workers painstakingly check prices on all these items each month and record how each price changes.

To calculate the annual rate of inflation, the BLS looks at how much all prices in its basket have changed since a year earlier. Then it “weights” the value of each item based on how much of it people buy. The weighted average of all items becomes the CPI.

The BLS then uses the CPI to calculate the annual rate of inflation. It divides this month’s CPI by the CPI from a year ago, then multiplies the result by 100. This shows how the purchasing power of a dollar has changed over the last year. The result is reported monthly.

Other measures of inflation include:

  • Personal Consumption Expenditures Price Index (PCE). This inflation measure is published by the Bureau of Economic Analysis. Like the CPI, it’s a measure of consumer costs, but it’s adjusted to account for changes in the products people buy. The Federal Reserve uses the PCE to guide its monetary policy, as discussed below. 
  • Producer Price Index (PPI). The PPI measures inflation from the seller’s perspective, not the buyer’s. It’s calculated by dividing the price sellers currently get for a basket of goods and services by its price in a base year, then multiplying the result by 100.

Historical Examples of Inflation

A little bit of inflation is normal. But sometimes inflation spirals out of control, with prices rising more than 50% per month. This is called hyperinflation, and it can be devastating for an economy.

Hyperinflation has occurred at various times and places throughout history. During the U.S. Civil War, both sides experienced soaring inflation. Other examples include Germany in the 1920s, Greece and Hungary after World War II, Yugoslavia and Peru in the 1990s, and Venezuela today. In most cases, the main cause was the government printing money to pay for debt. 

The last time the U.S. had prolonged, high rates of inflation was in the 1970s and early 1980s. The inflation rate was nowhere near hyperinflation levels, but it spiked above 10% twice. Eventually, the Fed hiked interest rates to double-digit levels to get it under control.

Although high inflation can be destructive, zero inflation isn’t a good thing, either. At that point, an economy is at risk of the opposite problem, deflation. 

When prices and wages fall across the board, consumers spend less. Sales of products and services fall, so companies cut back staff or go out of business. As a result, jobs are lost and spending drops still more, worsening the problem. The Great Depression was an example.


The Federal Reserve, or Fed, is the U.S. central bank — or more accurately, banks. It’s a group of 12 banks spread across the country under the control of a central board of governors. Its job is to keep the economy on track, reining in inflation while trying to avoid recessions. 

The Fed maintains this balance through monetary policy, or controlling the availability of money.

Its main tool for doing this is interest rates. When the economy is weak, the Fed lowers the federal funds rate. This makes it easier for people to borrow and spend. 

When the problem is inflation, it does the opposite, raising interest rates. This makes it more costly to borrow and more worthwhile to save. As a result, consumers spend less, slowing down the wage-price spiral.

The Fed has other tools for fighting inflation as well. One option is to change reserve requirements for banks, requiring them to hold more cash. That gives them less to lend out, which in turn reduces the amount consumers and businesses have to spend.

Finally, the Fed can reduce the money supply directly. The main way it does this is to increase the interest rate paid on government bonds. That encourages more people to buy bonds, which temporarily takes their money out of circulation and puts it in the hands of the government.


Inflation Frequently Asked Questions (FAQs)

If you keep seeing stories about inflation in the news, you may have some other questions about how it works. For instance, you may wonder:

What Is Hyperinflation?

Hyperinflation is more than just high inflation. It’s a wage-price spiral gone mad, sending prices soaring out of control. As noted above, the usual definition of hyperinflation is an inflation rate of at least 50% per month — more than 12,000% per year. However, some economists use the term to refer to an inflation rate of 1,000% or more per year.

What Is Disinflation?

Disinflation is a fall in the rate of inflation. This is what the Federal Reserve and other central banks try to achieve through their monetary policy, such as raising interest rates.

Disinflation is not the same as deflation, or falling prices. During a period of disinflation, prices are continuing to rise, but the rate at which they rise is slowing down.

What Is Transitory Inflation?

When the first signs of a post-COVID-19 inflation spike appeared, Federal Reserve chair Jerome Powell described it as “transitory.” By this, he meant that the rise in prices would be short-lived and would not do permanent damage to the economy. 

However, in November 2021, Powell declared it was “time to retire that word.” Based on the growth in prices, he had concluded that inflation was more of a long-term trend. The Federal Reserve responded by planning to fight inflation harder, buying more bonds and plotting out a series of interest rate hikes.

What Is Core Inflation?

Measuring inflation can be tricky because prices for some products fluctuate more than others. Food and energy prices, in particular, can shift a lot from month to month. Including these products in the CPI can lead to sharp, but temporary, spikes or dips in the inflation rate.

To adjust for this, the CPI and PCE have a separate “core” version that doesn’t include food or energy prices. This core inflation measure is more useful for predicting long-term trends. The  main versions of the CPI and PCE, known as the “headline” versions, give a more accurate picture of how prices are changing right now.

What Is the Consumer Price Index (CPI)?

As noted above, the Consumer Price Index, or CPI, is the main measure of inflation in the United States. The BLS calculates it based on how much prices have risen for an imaginary basket of goods and services that many Americans buy.


Final Word

A little inflation in an economy is normal. It can even be a good thing, because it’s a sign that consumers are spending and businesses are earning. The Fed generally considers an annual inflation rate of 2% to be healthy.

However, higher inflation can cause serious problems for an economy. It’s bad for savers whose nest eggs, including retirement savings, shrink in value. It’s even worse for seniors and others on fixed incomes whose purchasing power has fallen. And it often requires strong measures from the central bank to correct it — measures that risk driving the economy into a recession.

If you’re concerned about the effects of inflation, there are several ways to protect yourself. You can adjust your household budget, putting more dollars into the categories where prices are rising fastest. You can stock up on household basics now, before the purchasing power of your dollars falls too much. 

Finally, you can choose investments that do well during periods of inflation. Stock-based mutual funds and real estate investment trusts are both good choices. Just be careful with inflation hedges like gold and cryptocurrency, which carry risks of their own.

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Amy Livingston is a freelance writer who can actually answer yes to the question, “And from that you make a living?” She has written about personal finance and shopping strategies for a variety of publications, including ConsumerSearch.com, ShopSmart.com, and the Dollar Stretcher newsletter. She also maintains a personal blog, Ecofrugal Living, on ways to save money and live green at the same time.

Source: moneycrashers.com