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Getting Your Budge Right and Keeping it Tight

Updated: Dec 20, 2023

Inflation, characterized by prolonged increases in prices, can pose budget challenges. This year, we've witnessed a rapid rise in inflation, with the government's consumer price index revealing a 10.9% increase in food prices over the past year, marking the most substantial 12-month surge since 1979.

While higher prices can be concerning, they also present an opportunity to adopt a more strategic approach to your spending, enabling you to maximize your income. Learning how to budget effectively during periods of elevated inflation can empower you to rethink your financial strategies and potentially uncover opportunities for savings.

Empowering Yourself Against Inflation

Periods of rising prices can be unpredictable, and accurately forecasting the extent and duration of inflation is challenging. However, there are steps you can take to safeguard your financial well-being. Begin by examining your short- and long-term financial plans to identify potential adjustments.

Higher inflation might necessitate postponing a home improvement project or opting for a staycation instead of long-distance travel. In some cases, you might explore more significant measures like taking on a supplementary job or launching a side business.

Balancing your savings and debt repayment can be another effective strategy for shielding yourself from the adverse effects of inflation. When prices soar, the purchasing power of money in a savings account may diminish, especially if interest rates are lower. Consequently, you might choose to temporarily curtail taking on new debt.

Creating a well-structured budget is a cornerstone of a successful plan to weather inflationary periods. As you craft a budget tailored to handle inflation, consider these eight key factors to ensure your financial resilience.

  1. Optimize Your Mortgage Expenses As a homeowner, your mortgage is a significant portion of your monthly budget. Consider the potential for savings through mortgage refinancing. To gauge if refinancing is a sensible move, start by assessing the interest rates you could qualify for based on your credit score and income. Then, compare these rates to your current mortgage rate. Additionally, think about your long-term plans in the home and the associated closing costs of a mortgage refinance. If you intend to stay in the home long enough to reach the break-even point—where your interest savings exceed the closing costs—refinancing may be a wise choice. If mortgage refinancing isn't currently feasible, explore options to save on homeowners insurance. Finding a more cost-effective policy can contribute to budget optimization.

  2. Trim Rates on Other Debts Apart from your mortgage, you may have various other debts, such as credit cards or student loans, that require budgeting. Paying off debt or making it more cost-effective can mitigate the impact of rising prices. If you carry credit card debt, search for 0% APR balance transfer offers or inquire about low-interest personal loans from your bank. A 0% balance transfer offers a window to repay debt interest-free, while personal loans can consolidate high-interest debts at a more favorable fixed rate. Consider refinancing student loans to secure a lower rate, which can make monthly payments more manageable. However, be aware that refinancing federal loans into private loans may entail sacrificing certain benefits and protections.

  3. Investing now can help! During periods of inflation, investing may seem counterintuitive, but it's essential for maintaining and growing the purchasing power of your savings over time. Ensure you continue regular contributions to your investment goals, even in challenging financial circumstances. Some investments, like Series I savings bonds, are designed to help you beat inflation. Consider supplementing your income through dividend-paying stocks, as well, since certain companies can benefit from inflation by raising prices and delivering larger profits to shareholders.

  4. Cash-in on those side hustles The challenge with inflation lies in stagnant incomes not keeping pace with rising prices. To counteract this, seek opportunities to increase your income. Options include selling items you no longer need, negotiating a pay raise with your current employer, exploring higher-paying job opportunities, taking on a part-time or second job, or starting a side hustle or small business. While each option has its advantages and risks, expanding your income can help you navigate periods of sustained inflation and budget more effectively.

  5. Helping the environment and your wallet Inflation often stems from increased energy prices, affecting the cost of producing and transporting goods. Consequently, budgeting for higher prices involves assessing and minimizing energy consumption. One way to off-set costs is implementing energy-saving measures at home, such as sealing air leaks around windows and doors, regular HVAC system maintenance, using energy-efficient lightbulbs or switching to more energy-efficient appliances, and adjusting your thermostat for season-appropriate temperatures. Additionally, unplug electronics when not in use, maintain proper tire inflation, consider carpooling, and consolidate trips to conserve fuel. If you're grappling with higher energy costs, explore programs like the Low-Income Home Energy Assistance Program, which provides financial assistance to eligible households for heating and cooling bills.

  6. Save on Auto Insurance In addition to homeowners' insurance, reassess your auto insurance coverage to save money amid rising prices. Strategies for reducing auto insurance costs include raising your deductible to lower monthly premiums, negotiating safe driving discounts, adjusting coverage as needed, and comparing quotes from different providers to secure a more favorable rate.

  7. Eliminate Unnecessary Subscriptions and Fees Consider whether you're spending money on unused subscription or streaming services each month. The average household spends a considerable sum on these services annually. To counteract inflation, begin by cancelling subscriptions you no longer require. Personal finance apps like Mint and Truebill can simplify this process by connecting to your financial accounts, identifying subscriptions, and assisting in their cancellation. Some apps even help you negotiate better deals on cable, internet, and cell phone services, further reducing expenses. Additionally, evaluate your banking fees and explore the possibility of switching banks or seeking a new checking account to recoup money lost to fees.

  8. A different way to meal plan! Grocery expenses are necessary but can be managed effectively even in the face of rising prices. Consider these strategies to save on groceries:

  • Opt for generic products over brand-name items.

  • Buy in bulk when it offers cost savings per unit.

  • Plan budget-friendly meals using weekly sales flyers and membership discounts.

  • Explore local farmers' markets if available

  • Include cost-effective staple items like pasta and rice in your meals. Money-saving apps can also help you earn cash back on grocery purchases, Explore local farmers' markets if available

Inflation can present budgeting challenges, but there are proactive steps you can take. Managing your budget throughout the month is not about restricting yourself unnecessarily. Instead, it's a sensible approach to maintaining control over your financial well-being. By staying vigilant, making necessary adjustments, and prioritizing essentials, you can navigate any financial challenges that come your way while working towards your long-term goals.

Remember that a well-balanced strategy can help you navigate inflationary periods with confidence.


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