How to cope with inflation—emotionally & financially

As you pass a gas station on your way to the kids' soccer game or grab groceries for the neighborhood potluck, you can't help but notice higher prices. Although inflation has cooled from its 40-year high in 2022, the rate of inflation in 2023 remains above average.

Even if you feel some effects on your wallet, it's good to remember that inflation is a normal part of the economic cycle. And, as historical inflation trends suggest, there's reason to look for better days ahead. Meanwhile, learning how to cope with inflation could help, so you can continue the everyday activities that bring you purpose.

Let's take a closer look at how inflation works, what inflation anxiety might look like, and tactics you can try for a calmer state of mind.

During periods of inflation, you see a rise in prices that can lead to a decline in purchasing power. This means your money may not stretch as far as it used to. Usually, you hear inflation expressed as a percentage, indicating how much less a unit of currency can buy compared to when prices were lower.

While too much inflation in an economy can raise eyebrows, so can too little of it. Ideally, economists hope to see low-to-moderate inflation of about 2% each year. While it's simply part of the economy, you still might feel its impact on your financial decisions.

Rising prices understandably can lead to some worry, and you don't have to actually be experiencing money trouble to feel some financial anxiety. It's normal, even if you have a strong financial plan in place to support you and your family.

In fact, the 2022 Thrivent Consumer Financial Outlook Survey* found that 63% of those surveyed said inflation is pushing them off track financially.

Here are some common signs you might be experiencing financial anxiety:

• Difficulty making purchase decisions. Worrying about spending money can be a sign of financial anxiety. In some cases, it's natural—like feeling uncertain about making a substantial one-off purchase. But in other cases, like consistently worrying about being able to pay your bills, you might benefit from putting new financial strategies into play.

• Spending more than you can afford. On the flip side, you may overspend when you're feeling financially anxious to get the temporary feeling of relief, success or power that can come with spending money.

• Hoarding your belongings. When anxiety and overspending combine, it can lead to stockpiling items that felt good to buy, even if you don't need them.

• Experiencing feelings of depression. Financial stress caused by inflation, a recession, job loss or another income-related event can take its toll.

• Struggling with obsessive behavior. If you just can't seem to stop checking your bank account or can't sleep because you're thinking about money, it can be a sign of financial anxiety. Start trying to identify some of your potential triggers, as this could help you reflect on your habits.

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High interests rates & inflation: What that means for you

Take a look at how rising interest rates and inflation are linked, how they impact your money (and the broader economy) and ways you can take advantage of the effects.

Dive deeper

Putting financial anxiety in the rearview mirror starts with taking action. Consider these proven strategies.:

• Focus on what you can control. While you can't change inflation rates or the prices of goods, you can make empowering changes with your money. Start by identifying what's in your control. Consider reviewing how you spend your money, making a plan for paying down debt, and maybe even taking on a side hustle to boost your income.

• Get back to basics and make a new budget. If you feel like you can't keep up with the costs of inflation, it might be time to create a fresh monthly budget—one that accounts for the more expensive prices you're encountering. With a realistic budget in hand, you'll know exactly where your money will be best allocated each month. Pay close attention to where all your income is coming from and where you've been spending it. Write down your fixed expenses (such as living and transportation costs), then account for your varying necessities (like gas or groceries), and lastly, add in some savings goals. When you have a workable plan in place, remember: The most important part of a budget is sticking to it. The Thrivent survey found that while 82% said a budget is effective, only 53% currently follow one.

• Establish emergency savings. When revising your budget, make room for an emergency savings fund. It's a good feeling to know you have savings at hand if you face unexpected expenses or lose a source of income. So it's certainly no wonder the Thrivent survey found that 31% of Americans have a goal of increasing their emergency savings.

• Create financial goals for yourself. Set short- and long-term plans for your debt and investments (such as saving for retirement). Then start chipping away at them. You may want to start with a short-term goal to give yourself a boost of financial confidence.

• Review your credit score and reports. It's good to know where you stand, credit-wise. A strong score could set you at ease. Or, if you don't, you can be proactive and start taking steps to get your credit score in a better place.

• Manage debt. If you have debt, tackle it head-on. As you make progress on paying down debt wisely, you'll spend less on interest payments and will start freeing up room in your budget to work toward other financial goals. Think about creating a plan to make consistent on-time payments for all your sources of debt and keep your credit score healthy.

• Ride the wave when it comes to investments. If you're investing, don't let inflation push you off course. It can be helpful to "ride the wave" during times of economic difficulty. Investing when the market is down may result in a profit if you can hold onto your investments until market conditions improve. You may need to rebalance at times, but maintaining investments even during periods of high inflation can lead to growth.

You don't have to face the challenges of inflation on your own. If you're struggling with debt, you can reach out to your creditors or lenders to learn what hardship options are available for repayments. A mental health professional also can help you work through options for coping with financial anxiety.

And when it comes to navigating your money, you can talk with a financial advisor and create realistic goals and plans, whether it's having enough money during retirement, saving to buy a home or something else. Asking for help may seem intimidating, but it can make a world of difference.