We all dislike
inflation, but we have to deal with it. If you’re like me, you think inflation
sucks. The current inflation rate is about 7.9%. Now you might say that’s huge.
We haven’t had that inflation in years. Well, yeah, 40 years, but it’s not that
we have never had that level of inflation. In fact, just after World War II,
back in the mid-1940s, we had inflation rates of around 15%. This is pretty
high, almost double what we have now. And again, it impacts all of us. It’s
real, we need to adjust and plan for it.
There are two
levels, first business and then personal. On a business level, if you’re a
business owner or a decision-maker, is inflation impacting your
business?
If the average inflation rate is 8%, how will you maintain the same level of profitability when your expenses are increasing at least 8%? You have three options.
1. Increase Price
If you increase
the price, you must know that the market can bear that price increase. So you
could increase the price, and your sales volume could go down. If you’re going
to increase the price, you have to know that your sales volume will stay the
same.
2. Increase
Volume
If you can sell
more at the same price, you’ll have more revenue, and you’ll be able to
compensate for some of those increased expenses. But for that to happen, you probably
have to take on, at least implement, a good marketing sales and marketing plan
or some kind of new promotion. If you grow your expenses to some extent,
that’ll help you increase volume At least with that you can maintain
sustainable profitability.
3. Decrease
Expenses
If you can’t
increase the price and you can’t plan for an increased sales volume, then you
can begin decreasing expenses in other areas. If your costs increase 8%, there
is no change in anything you’ve purchased, but prices rise 8%. You can decrease
expenses in an area to compensate. For example, if you bought $1,000 of
supplies, now that $1,000 of supplies will cost more like $1,100, rounding off
to a 10% increase. You’ve got to find that a $100 somewhere to save. It might
be in another supply, or it might be in some other administrative expense.
Whatever it is, you’ve got to be able to reduce expenses in another area.
Unfortunately,
many times businesses will hit labor. That means that people will get laid off
and lose their jobs because companies can’t afford the same amount of labor
costs because costs in other areas are going up. They can’t compensate for that
from the revenue side, increase in price, or increase in sales volume.
Does
inflation impact business?
Yes, it does,
and you need to create a plan. It’s crucial now to plan ahead. Inflation is
likely to rise even more. That means that we have to plan for either increasing
price, knowing that our goods or services that we’re selling can bear that
increased price.
We have to increase
volume and sell more or decrease expenses. And the problem with decreasing
expenses is you have to find the area where you can find the expense to
decrease. In other words, if there are supplies in one place, they will cost
more. You might have to reduce supply costs in another area.
I encourage
looking at price, increasing sales volume, and decreasing expenses in every
area, except for labor. Keep those people employed. Your employees are the
lifeline of your business. They are what make your business thrive. They’re
what make your business successful. Don’t touch labor. Richard Branson said it
best employees are the most essential component of your business. It all starts
with employees. Be sure to care for those employees and address inflation in other
areas.
Your customers
come next, then your shareholders or stakeholders. But if your employees aren’t
happy, your customers aren’t satisfied. If your customers aren’t happy, you’re
not growing your business.
How does
inflation impact you personally and your family?
With an 8%
inflation rate, this will impact your household expenses. Your household
expenses will go up an average of $300-500 a month. So let’s be conservative
and say 300, that’s $3,600 a year. If you have the average or median income
that we experience in the United States (which is around 70,000 a year), you
make $70,000 a year, and inflation is going up to $3,600 a year; that’s over 5%
of your total revenue or your total pay.
If you can save
regularly 5-10% of your income, you’re making $70,000. That’s 7,000 that you’re
put into savings. Now $3,600 of that will increase costs towards filling your
gas tank, groceries, clothing, whatever it may be, it will go up by 8- 10% by
the end of this year.
If you had a
vacation plan that would have cost you about $3,600. Now that $3,600 is not
going to be put towards keeping your household consistent, meaning you’re not
taking on any new expenses. You’re not increasing any expenses into your home.
You’re just staying. Everything you purchased before is the same as last year.
And this year, it’s just going to cost you $3,600 more. So you won’t be able to
take that vacation, or you’ll have to be able to compensate for it.
You have to
save even more. If it costs you $50,000 to run your household, like mortgage
insurance, groceries, clothing, and education, it’s all now $3,600 more.
Does
inflation impact you?
Yes, it does.
And you need to plan for it. Start doing everything you can to decrease your
expenses in your household. Try reducing costs by doing the following:
- Look for more favorable insurance
rates
- Switch grocery stores to find
lower-priced items
- Limit your spending habits on
clothes and accessories
Overall, be a
bit more prudent and try to impact your household as minimal as possible. Maybe
you will have to wait to get that new car or wait a little longer to take that
vacation. Whatever it may be, know that inflation is real and won’t be going
away any time soon.
Remember, it
won’t last forever, and things will get better, but in the meantime, let’s plan
accordingly so we can make it through the next year or two.
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