Hyperinflation: What It Is and 8 Money Tips to Fight It

Hyperinflation occurs when the cost of goods and services rises 50% a month or 1,000% annually. In comparison, the annual inflation rate in the U.S. was 6.4%, after hitting a 40-year high of 9.1% in June 2022.¹ That’s far below the rate for hyperinflation.

During hyperinflation, prices climb steeply as the value of money decreases, making the price of anything costly. In other words, you need more cash to buy something than before. The economy becomes inflated with devalued money leading to a hyper-expensive cost of living.

Inflation and hyperinflation are economic terms sometimes used interchangeably, but there is a stark difference between them.

Inflation is a sustained, gradual increase in the prices of goods and services. Hyperinflation is a rapid, intense form of inflation that occurs when prices are out of control.

Hyperinflation typically occurs in countries experiencing long-term economic decline. In the early stages of hyperinflation, a country’s currency may lose half of its value in just a few weeks or months. If a country faces a significant military or political upheaval or experiences a loss of export revenue, the resulting currency devaluation could also cause hyperinflation.

Let’s look at a recent example to help illustrate this concept. In 2008, Zimbabwe experienced one of the worst cases of hyperinflation in global history. A mix of political instability, economic mismanagement, and international sanctions shut down the country’s economy.²

This event led to a swift devaluation of the Zimbabwean dollar, then known as the Zimdollar for short, creating an enormous price rise. The hyperinflation incident started in early 2007, and by the middle of November 2008, inflation was at 89.7 sextillion percent. It took years for Zimbabwe to recover. That is what hyperinflation looks like — astronomically high inflation rates.³

There are two main causes of hyperinflation — an excess money supply and more demand for goods than are available.⁴

An excess in money supply devalues currency, leading to a dramatic price surge and a decrease in purchasing power which can all lead to hyperinflation. Sometimes this happens because of excessive government spending, too much money printed to pay off debts or to finance foreign wars.⁵

TLDR: Demand is how much of a good or service buyers want. Supply is how much businesses can produce to fill those wants. Cost refers to the total price of an individual good or service. When demand is higher than supply, the cost of goods can increase. If prices increase too quickly, it can lead to hyperinflation.⁶

Fortunately, the U.S. economy is nowhere near hyperinflation levels. The Consumer Price Index — one popular measure of inflation — peaked in June 2022 at just over 9% before steadily falling.⁷ The Federal Reserve has worked to carefully and slowly bring the levels back to the target of 2 percent inflation.⁸

Whether you’re looking for millennial-specific budgeting ideas or ways to save money during inflation, these creative cost-cutting solutions can help you stay ahead of your finances.

1. Identify wants versus needs

One of the best ways to save money – especially when it comes to non-essentials – is not to spend it in the first place.

If you have trouble identifying wants versus needs, make a rule for yourself, like the 30-30 rule: if the purchase is over $30, wait 30 hours before buying it. The Minimalists’ Joshua Fields Milburn adopted this rule years ago to help curb impulse buying.

If you still love the idea of your desired item after waiting, then get it! However, you may save more money by skipping impulse buys or finding an alternative.

2. Save money while grocery shopping

Kahlil Dumas, a finance expert and the CEO of Unstuckkd, shared his best hacks for saving money while grocery shopping during inflation. Here are Dumas’ recommendations:

• Plan meals around ingredients that are in season.
• Make a shopping list and stick to it.
• Buy in bulk when items are on sale.
• Avoid shopping when hungry.
• Compare prices at different stores and choose store brands.
• Use coupons and discounts $3-$5 can add up quickly!
• Avoid pre-packaged or processed foods.
• Buy fresh produce from local farmers’ markets.
• Keep track of what’s in your pantry before shopping.

3. Cut unnecessary expenses

Call your insurance, credit card company, or loan servicers, and ask for reduced rates, hardship programs, or alternative payment plans.

Cancel subscriptions you no longer use and look for low-cost or free alternatives. Take advantage of free streaming services (like Sling, Tubi, Roku, or Freevee) to save an extra $8 to $20 monthly. Reducing expenses can help reduce lifestyle inflation, the tendency for your spending to increase as your income does.

4. Add in some additional income streams

Sometimes the underlying problem is a cash flow issue. Try adding new income streams into the mix. For starters, you can sell unwanted or unused items on online marketplaces.

You could also start a side hustle or grow some passive income opportunities. Just stick to a budget while you side-hustle so you don’t end up right back where you started!

5. Build up an emergency fund

Remember to save for a rainy day, says Harry Turner, Founder of The Sovereign Investor and former hedge fund manager.

“The first thing to do to inflation-proof your budget is to build up an emergency fund, with a goal of having three to six months’ worth of living expenses saved away in the case of financial hardship or job loss.”

How can you do this? “Trim the fat from your budget and prioritize essential spending—food, housing, transportation—over discretionary spending like entertainment, hobbies, clothes shopping,” Turner says. “One great way to save is by automating transfers into separate savings accounts each month as part of your budgeting process, so you don’t even have to think about it.”

6. Pay off high-interest debt first

According to Turner, building strong credit and increasing cash flow is crucial during inflation. “Pay off debt before borrowing more; reducing existing debt will reduce interest payments and help free up cash for necessary purchases.” Whether you use the snowball or avalanche method, get those balances down quickly!

“Research different loan options that can help lower overall loan payments or extend the repayment timeline if needed during tough times ahead,” he added. “Any additional money coming in should go directly towards your emergency fund or pay off existing debts.”

7. Invest in your future

What about investing? Turner says you can’t miss this step because investing wisely helps you weather financial storms.

“Aim for inflation-adjusted investments that are designed specifically handle fluctuations in prices over time (like I-bonds), and diversify your portfolio across different asset classes and sectors that may help hedge against market volatility.”

He shared, “The key here is to be mindful about not putting all your eggs in one basket – even taking small steps such as regularly making contributions into an IRA account with different types of investments can help you ride out market cycles until things turn around again.”

8. Pay off high-interest debt first

Michael Ashley Schulman, Chief Investment Officer at Running Point Capital Advisors, recommends paying down high-interest rate debt like credit cards “before the rapidly compounding debt swamps any attempt to build up savings.”

As an alternative option, he advised that “if you are locked into a relatively low-interest rate loan like 3% on a home mortgage or 4% on an auto loan, inflation can be your friend as it depreciates the values of the underlying debt.” It’s all about leveraging debt in your favor and avoiding bad compounding interest.

All budgeting methods have a similar goal: to encourage you to spend your money wisely. The three most popular are the 50/30/20 method, the envelope system, and zero-based budgeting. The best budget for you is the one you can stick to long-term.

50/30/20 method

The 50/30/20 budgeting method is a popular budgeting technique that divides your income into three categories:

• 50% for essential expenses,
• 30% for wants, and
• 20% for savings or debt repayment.

This method encourages you to consider your financial priorities and understand where your money is going. It can help you create a sustainable plan for managing your finances in the long term. The 50/30/20 plan works best with more stable income sources and living costs.

The envelope system

The envelope system divides your income into different ‘envelopes’ for each monthly expense, like groceries, rent, and eating out. Once you spend the money in each envelope, that’s it for the month! This method lets you easily track how much you spend in each category and ensure you spend wisely.

If you have difficulty controlling your spending or want to start setting aside money for specific purposes, you can use this system to stick to your budget and achieve your financial goals faster.

Zero-based budgeting

Zero-based budgeting means that every expense in your budget is spoken for. You re-evaluate your expenses often and accurately track your spending.

This budgeting method can also help you identify unnecessary costs and make adjustments to maximize your income.

Budgeting is one of the most crucial steps in combating inflation. Becoming financially secure will give you peace of mind against unlikely but real-world risks like hyperinflation.

Don’t just save money. Make your money work for you. Find out more ways to grow your income during inflation.

Hyperinflation can cause the price of goods to jump. Learn how to remain financially stable during periods of high inflation with these expert tips.