Inflation, or prolonged price increases, can take a big bite out of your budget. Inflation has risen rapidly this year, with the government’s consumer price index showing food prices soaring 10.9 percent in the year to July. That was the biggest 12-month gain since 1979. Soaring prices have made it difficult for many Americans to cover their monthly expenses. The cost of almost every major expense, from housing and food to health care, is rising. Staff wages are not keeping up. It is becoming more and more common to spend the money that comes in every month just as quickly.
Higher prices mean you may need to spend more strategically to increase your income. Knowing how to budget for a period of high inflation can help you rethink the way you spend and possibly find ways to save.
Track your expenses
If you’re constantly wondering where your money is going, it’s time to track your spending. While you probably have a rough idea of where your money is going each month, how clear are you on the specifics? For example, do you know how much you actually spent on groceries, fuel, and eating out last month? You can know exactly how much you spend in each budget category. Getting a better handle on your expenses is especially important when deciding how much you can afford to pay for rent or a car each month. Grab your phone or laptop and add an entry every time you spend money. Exclude fixed expenses, as you will be tracking them in your actual budget.
Lower your housing costs
Housing is likely to be your biggest monthly expense, and you may end up spending more money than is ideal. Many financial experts recommend spending no more than 30% on rent, while lenders want to see you spend 28% or less of your gross monthly income on housing expenses to qualify for a mortgage.
Overspending can overwhelm you. Swiping $10 a few times a week can quickly lead to a credit card balance that is too high or over budget.
Consider these simple changes to reduce overall spending:
- Order groceries online to avoid impulse buys
- Shop less often online (e.g., only order from Amazon once a month)
- Keep a running “wish list” of items you want or need. When you come across a lot of things, check your list – if something is on your list, buy it. If not, go ahead.
- Unsubscribe from retail emails that tempt you to spend
- Add personal spending categories to your budget. Allocate a specific amount of money and spend it any way you see fit without guilt.
Shop smarter at the grocery store
Raising a family is not something you can afford to ignore, so it’s important to find smart ways to budget for groceries when prices rise. Here are some money-saving tips to help you manage your grocery budget:
- Swap brand-name products for generic ones whenever possible.
- If you can buy items at a lower unit price, buy in bulk.
- Incorporate more meat-free meals into your family’s diet.
- Use the grocery store’s weekly sales flier to plan budget-friendly meals.
- Shop at your local farmers market if this is an option where you live.
- Incorporate more low-cost staples into your meals, such as pasta or rice.
You can also use money-saving apps to reduce grocery spending. For example, you can use coupon extension like CouponBirds SmartCoupon Finder to help you save money when you are shopping. It could be an easy way to fight inflation and rising supermarket prices.
Planning for the next quarter or even a full year can help you maximize your savings. In addition, having a full three to six months ‘worth of living expenses saved in an emergency fund will allow you to be prepared for any emergency you encounter. Maintaining an emergency fund will protect your finances against future increases in expenses, possible illness, accidents, or loss of income. Project your expenses for the next 6-12 months and identify the expenses you can start saving for now. Items such as Christmas gifts, birthdays, tuition fees, holidays, annual bills, etc., are all things you can save by using your sinking fund. Save a small amount (or paycheck) each month until you have saved enough to cover the entire cost. Keep your debt service funds in a separate savings account to avoid unexpected expenses.
Increase your income whenever possible
Finding ways to raise revenue can make it easier to get through a long period of inflation and set a budget. Some possibilities for increasing revenue might include:
- Selling things you don’t need
- Negotiate a raise with your current employer
- Change jobs for a higher salary
- Take a part-time or second job
- Start a side business or business
Each option has its advantages and disadvantages, as well as risks and rewards. But increasing your income over time may be one of the best ways to protect yourself and your budget from inflation.
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