Homeowners are feeling inflation pains 'a lot less' than renters: Expert

Jean Chatzky, financial planner and author of 'How to Money,' joins Yahoo Finance Live to discuss how inflation is affecting personal finances and offers four tips for how to budget amid record high inflation rates.

Video transcript

- Welcome back, everyone. One California police department tackling high gas prices and getting guns off the street in one fell swoop. Now, in Sacramento over the weekend, the police department holding a gun buyback event. And it was giving out $50 gas gift cards in exchange for the weapons. The program was so successful that the police actually ran out of gift cards after 45 minutes. This event was supposed to last for five hours. Now, in California it's understandable because the average price for a gallon of regular gas, $6.07 right now.

Well, according to data from Moody's, the average household is paying an extra $341 a month this year compared to last year for the exact same products. Well, to help us explore how to budget for that, I'm joined by Jean Chatzky, CEO and co-founder of HerMoney and co-author of "How to Money." Thank you for joining me today.

JEAN CHATZKY: Thank you so much for having me.

- Yeah. So I first want to get everyone on that starting point. For people who've never budgeted before and want to start, what are the most important steps to make sense of your money and start prioritizing what you need to focus on right now?

JEAN CHATZKY: You need to know where your money is going. And that means knowing three things. What is coming in, what is going out, and then very specifically what you're using your money for. And, quite frankly, you can use a lot of apps to get this information. But I kind of prefer an old-school approach because you really have to pay attention to all the different flows.

That's not just your credit card spending. It's not even just your credit and debit card spending. It's your Venmo, and your Apple, your iTunes, and all of the different things that go into making up your monthly budget. So if you've never paid attention, just start tracking. Do it for a solid month. And you'll have a much better idea.

- Now, obviously with inflation, different things have been surging in terms of prices versus others. How do you calculate your personal inflation to get a clearer picture of how the different prices are affecting your budget and if you need to change it?

JEAN CHATZKY: So it sounds really complicated, right, calculate your own personal inflation rate, because this is something that we count on the government being out there to do for us. But, really, it's just the difference in your spending in percentage terms month over month from a year ago. So let's say you want to calculate your own personal spending rate, your own personal inflation rate, from April of last year to April of this year.

You look at what you spent in April of this year. You look at what you spent in April of last year. You take the total for this year, and you subtract the total for last year. And then you divide it by the total for this year. And for anybody who's ever had to compute percentage changes, the formula, y2, year two, minus y1, year one, divided by y1 will get you there.

And it's going to be very different for all people depending on, again, how you spend your money, where your money goes. But one thing I can tell you for sure is that people who own a home, a home that they bought when mortgage rates, as your prior guest said, were still locked in that 3% range, are feeling it a lot less than people who have had to rent an apartment, as rents have been skyrocketing over the past couple of months.

- And speaking of home prices, obviously we're seeing a lot of Gen Z starting to get into the workforce, graduating from college. They would like a house. But there's a tight housing market. They would like a job that they love. We're starting to see some layoffs, even though it is still a tight labor market. And of course, coming into surging inflation. And then of course stock market volatility. Why are those issues hitting Gen Z particularly hard versus, say, other generations?

JEAN CHATZKY: Well, they're hitting Gen Z particularly hard because Gen Z has never been through them before. You think about this class of college graduates just coming out, just coming into the workforce at a time when inflation is starting to rise, at a time when interest rates are beginning to tighten.

And all of a sudden, things are getting more expensive than they used to be. So that starting salary that you thought you locked into and sounded amazing all of a sudden doesn't sound as good anymore. But it doesn't have to be a horrible picture. There are things that you can do-- and we talk about them a lot in the new book, "How to Money"-- to get your personal financial life in shape so that you can weather a storm like this and you can weather the volatility in the market.

For young grads coming in, I actually think this sort of market volatility is an opportunity. You're getting into your 401(k) at a time when prices have come way down. That allows you to buy some really good stocks on sale. And, yes, prices may continue to go down. But if you're dollar cost averaging into a new retirement plan, a 401(k) or an IRA, and you're buying every single time you get paid, you're going to get some bargains.

- And just quickly, we have about 45 seconds, obviously people made a lot of changes, as you mentioned, over the last two years, whether it's a new job, a lot of people getting married. You also have women who were disproportionately affected by COVID trying to come back into the workforce and balancing childcare and the cost of that as well. What advice do you have for people whose situation has suddenly become fluid or uncertain?

JEAN CHATZKY: Now is still a really good time to work on the left side of your financial equation, work on the earning side of your financial equation. It is really tough for employers to find qualified people right now. If you are one of those qualified people, you get your resume out there, you start interviewing, and you ask for more money than you are offered at the first sign of a negotiation. The people who are not asking are making a huge mistake. And, unfortunately, women tend to be among them more than men.

- There you go. Be vocal, everyone. Thank you so much. Jean Chatzky there, CEO and co-founder of HerMoney and the co-author of "How to Money."