Budgeting in an environment where inflation constantly creeps up on you can be frustrating. However, it doesn’t have to throw off your financial goals. Being proactive and taking control of your money can help you stay ahead of the line. Keep reading to learn how to account for inflation, adjust your budget and avoid lifestyle inflation.
How to Account for Inflation In Your Budget
Inflation is the gradual loss of purchasing power based on an increase in the cost of goods and services over time. This means your money doesn’t go as far as it used to, but it doesn’t mean you have to let it derail your financial plan. It’s essential to account for rising costs to better budget and stay on track. To account for inflation in your budget, first review your budget and determine what recurring bills are increasing in cost.
- Groceries: If your grocery costs are rising, adjust this category in your monthly budget accordingly. You can continue to look for ways to save by cutting coupons, planning meals and buying in bulk.
- Utilities: Have you noticed increased electricity, natural gas, water or other utility bills? If so, you will need to adjust for these increases. However, you can also look for ways to reduce energy consumption, like turning off lights when you leave a room and unplugging electronics when not in use.
- Gas: Unfortunately, gas price fluctuation is a fact of life, so it’s critical to leave some extra room in your budget for transportation. Carpooling and alternative methods of transportation may be options worth considering.
It’s best to accept that costs will rise and account for them before they sneak up on you and throw off your entire budget.
How to Adjust Your Budget for Inflation
Once you’ve accounted for changing costs, you’ll want to update your budget accordingly. If you’re living on a fixed income or working towards getting out of debt, updating your budget can be challenging, but being proactive is always a good approach.
Here are a few ways you can adjust your budget for inflation:
- Prioritize needs over wants: Essentials like food, shelter and healthcare need to come first. If your budget’s getting tight, look for ways to cut discretionary spending.
- Cut back on the “wants”: Lifestyle inflation is when you let your spending rise as your income grows. Higher spending compounded by increased costs can lead to a paycheck-to-paycheck situation.
- Reevaluate debt payments: If you’re dealing with higher living costs, it might make sense to restructure your debt repayment strategy, but only temporarily. You may need to reduce extra payments until you’re back on track.
Adjusting your budget isn’t a reactionary move; it’s a proactive move towards taking control, making necessary changes and keeping your eye on your goals.
How to Avoid Lifestyle Inflation
When you get a raise or a bonus, it’s tempting to spend more liberally. However, lifestyle inflation, also known as “lifestyle creep,” mixed with decreased spending power, can put you behind on your goals and potentially land you in debt. Here are three ways to avoid this self-created inflation:
- Stick to your current budget: Just because you got a raise doesn’t mean you need to level up your spending. By keeping your expenses the same as before, a raise or bonus can help you reach your financial goals faster, by paying off debt, saving for an emergency fund or building wealth.
- Save and invest: If you get a raise, use it to increase your savings or invest in your future. If you’re debt-free, you can increase your retirement savings.
- Enjoy what you have: Instead of looking for ways to upgrade your lifestyle, seek ways to upgrade your mindset. While there are worthy things to invest in once you have more income, you don’t need to let society pressure you into thinking you need more.
Remember, lifestyle inflation can keep you in a vicious cycle, but you can break free by focusing on saving, investing and avoiding overspending.
Bank With a Local Financial Institution You Can Trust
Inflation might be a reality, but it doesn’t have to crush your financial plans. Start by reviewing your budget today, making those necessary adjustments and keeping your spending in check. A zero-based budget is a great way to ensure that every dollar contributes to your monthly spending, giving you more control over your finances.
Check out Community Point Bank’s service offerings today if you’re looking for a reliable local bank to help you meet those financial goals. If you have any questions about our services or want to visit one of our three locations, visit our Contact Us page to request more info.
