In the last couple of years, inflation has increased—reaching historic highs in June 2022 at 9.1%. While current inflation has fallen, experts say that it could stay high until 2026. One way to combat the unpredictability of these fluctuations is to keep a budget and manage your debt wisely.
Not sure where to start? Here are five tips to help you budget for inflation.
1. Prioritize Your Expenses
Add up how much you pay towards your mortgage or rent and auto loan and subtract them from your monthly take-home. Some experts suggest a zero-based income, meaning your income minus all your expenses should equal zero. Or try the 50/30/20 method: 50% of your income goes to necessary expenses, 30% to discretionary expenses, and 20% to savings and debt repayment.
2. Cut Costs
With fluctuation comes unpredictability, so cutting costs where you can gives you some control over your financial output:
- Groceries: Know what’s already in the fridge before making a trip to the store to reduce overspending. You can also save money by buying in bulk, using coupons, or paying attention to sales.
- Utilities: Reduce your monthly utilities by installing LED lights, reducing warm water use, and changing air filters regularly.
- Other expenses: Drive less (walk, ride a bike, carpool), don’t eat out, and curb your shopping.
3. Pay off Debt
Just like budgeting, there are different methods that can help you pay off your debt.
- Debt snowball: Pay off your lowest credit card, then roll the money you were paying into that one into your next lowest debt. Repeat.
- Debt avalanche: Pay off your debt with the highest interest rate, then roll your money into the next debt with the highest interest rate. Repeat.
4. Save
While saving always seems like a good idea, 27% of U.S. adults have no emergency savings, while 59% are uncomfortable with their level of savings. But there are different techniques that can help you save: Set aside the same amount of money from every paycheck or follow the 80/20 rule (put 80% of your income toward household expenses and 20% toward savings).
5. Manage Your Debt Wisely
Through nonprofit credit counseling, you can get help building a budget and managing your debt through a debt management program. This means your credit counselor will work with your creditors to reduce your interest rate and consolidate your credit card debt into one affordable monthly payment—all to be paid off in three to five years.
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