How to Budget During Inflation - 5 Steps to Take Now

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June 22, 2022

How to Budget During Inflation - 5 Steps to Take Now

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It’s time to buckle up because it appears we are in for a long, bumpy ride. Economists may not know how long inflation will last, but, for most of us, we feel it right now with almost every purchase. The latest Consumer Price Index shows we are paying 8.6% more in May 2022 versus last year at the same time, with no relief in sight. Whether these higher prices are caused by supply chain issues or consumer demand, it’s hard to say. From groceries to gas, to baby formula, insurance, and housing, we all feel the sting as prices continue to rise.

This isn’t meant to scare you; instead, we need to look at the facts and understand our new reality — even if short-term, inflation is taking a chunk out of monthly budgets and it’s more than most of us have felt in our lifetimes. It may lead you to wonder if there’s anything we can do. The good news is yes, we can absolutely do something about the impact of inflation. While we can’t change the economic policies for our country, we can impact our own household economics, budget against rising costs, and save money.

There are steps we can all take to help protect our budgets as much as possible during this turbulent time but these next steps are nothing new. Unfortunately for us, there’s no magic bullet or easy one-size-fits-all solution here, but you will notice that this is about going back to basics with our budgets.

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5 steps to budget during inflation

If you’re ready to get back to the basics of budgeting — or learn how to start from the very beginning — here are the tried and true strategies.

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1. Review your current spending

The first step is to know exactly where your money is going and account for every dollar. Physically speaking, this is an easy step. You download your statements from your bank and credit cards and you should be able to see line by line where your money is going.

While it may be relatively simple to pull this information together, it may be tougher than you realize to see it in black and white. Sometimes it’s hard for us to be face to face with the reality of how we are spending our money. You look back at what you spent and you may feel frustrated, angry, or perhaps defeated. Don’t let these feelings get in your way. Instead, focus on the opportunities you have to improve.

When reviewing, take a look at your categories of spending. Most of your spending rolls up into these major areas of spending. Take a look at how much you’re spending in each category and evaluate if your current spending levels look balanced.

Housing/maintenance
Food/Groceries/Eating out
Transportation/gas/mass transit/repairs
Child care
Insurance premiums/medical bills
Clothing
Entertainment
Loan payments/credit cards/student loans
Savings/investments

The percentage of your budget dedicated to each category will look different for everyone. Most people spend the largest portions on housing, transportation, food, and insurance, according to the Bureau of Labor and Statistics.

Now that you’re armed with the latest information regarding your spending, it’s time to move to the next step.

2. Create a new budget and cut out unnecessary expenses

During times of high inflation, you should establish a budget and cut out as many unnecessary expenses as possible. If you’ve never lived on a budget before, now is a great time to start.

Now that you know your current spending levels, it can help you shape your new budget. There are several budgeting methods or techniques you can use, and there is no right or wrong approach here. The key is to find one that works for you and your family. Here are popular budgeting methods to consider:

You can read more about the various budgeting methods here.

Cut expenses

When designing your budget, look for ways you can reduce your spending. This may be the time to cut back on subscriptions or eating out. Right now gas and groceries are where we are feeling the pinch the most, so look for ways to reduce spending in these categories so you have an immediate impact on your budget.

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3. Deep dive for extra savings

High inflation requires us to take more drastic measures with our personal finances. This means looking for savings in places we might normally overlook.

With grocery shopping, try using coupons, stocking up on sale items, and shopping with a list (instead of when you’re starving and wandering around the store searching). Preparing meals yourself and cutting out convenience foods are other ways to save at the market.

You can get creative for gas savings by carpooling, taking public transportation, or simply reducing the amount you drive. Downloading an app like GasBuddy, which shows you the least expensive prices in your market, is another way to save. There are also numerous gas rewards credit cards too.

There are multiple personal finance categories where you have room to negotiate for better prices. This includes:

Streaming services or cable
Insurance premiums, such as homeowners or car insurance
Mobile phone services
Internet

Taking a little time to shop around and compare prices will help get your finances in top shape and help you stick to your new budget.

You may have to reduce spending even more by looking for ways to refinance your private student loans or high-interest credit cards. It may be worth the effort to transfer a credit card balance to a 0% APR introductory rate option.

4. Continue investing

Building your savings account may be the last thing on your mind but this is the time when you want to pay attention. As tempting as it might be to stop investing or saving, you should continue to do so even during inflation.

Start with a small savings goal, such as a $500 or $1,000 emergency fund. By putting this in place, you reduce the chance of racking up more credit card debt and stop the cycle of more debt. Whatever amount you choose, keep it in an account you have easy access to (but not too easy you’ll be tempted to spend it), even if the interest rate is low. If you’re looking for savings options with higher interest rates but you may not need to touch the money for a while, look into a high-yield savings account option or consider a Series 1 Savings Bond.

5. Increase your income

You may make drastic changes to your budget and spending, negotiate lower rates, stash away a little for savings, and yet you still feel like there’s not enough to go around. The reality is, you may be doing all the right steps but the high inflation rate makes us come up short.

It may be time to consider increasing your income. You can do this in several ways. With your current job, it could be time to negotiate a higher salary, especially if you have the numbers to back it up and if you stayed loyal to your employer throughout the pandemic and beyond. Or, it may simply be time to get paid what you’re worth.

It may mean looking for another higher-paying job too, which better suits your financial situation during this season of life.

Another option if you don’t want to leave your current work situation is to take on a side hustle. Side hustles are fun because you can literally choose almost any way to earn extra money. From child care to pets, to delivery drivers or freelancers, there’s no limit to the number of ways to earn a little extra, including working from home or for another company.

If you’re looking for more ideas to bring in extra income from a side hustle, here are a few to consider:

Freelancing, such as writer, photographer, designer, social media consulting, web design, coding
Delivery driver, including rideshare, food delivery, local deliveries
Pet set sitting or dog walking
Tutoring
Task services, such as handyman or running errands

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If you're tight on cash right now, you may want to consider getting a personal loan. A personal loan is a loan that you can use for just about any purpose like: paying off other debt, renovating your home, or family needs like a wedding or adoption.
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The bottom line

Remember this, when it seems like you can’t squeeze another dollar out of your budget or work one more extra hour for additional income, this is only a season. We might not know when the Federal Reserve will raise interest rates again or the gas prices will finally drop, but we do know there are ways to fight high inflation. By knowing how your money is coming in and going out, plus sticking with your strategy to only spend on the most important things right now while still investing and saving, you can ride out this turbulent time.

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Sara Coleman is a former corporate gal turned creative entrepreneur. She began writing professionally several years ago and now contributes to multiple websites, blogs, and magazines. She’s also an avid reader and can’t resist a great historical fiction novel. Sara holds a BA in journalism from the University of Georgia and can be found supporting her Bulldogs every chance she has. She resides in Charlotte, North Carolina, with her wonderfully supportive husband and three children. When she’s not ushering her kids to sports and dance lessons, she can be found creating content for her own website, TheProperPen.com.

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