How to budget during inflation

The buzzword on everyone’s lips these days is inflation. It’s in the news and in everyday conversations with friends and family. But, of course, inflation, in and of itself, isn’t a bad thing. The Federal Reserve tries to ensure a modest rate of inflation, about 2% every year. Doing so gives them wiggle room to lower interest rates when the economy needs a shot in the arm. But the increases are slow and manageable for the American consumer. But the average inflation rate this year has jumped to 7%, and everyone has noticed. While there’s not much an individual can do to stop price and interest rate hikes, they can control how they budget their money when it happens. How to do this might come as something of a surprise. So let’s take a look.

Stay calm

Before you do anything, take a deep breath and get control of your emotions. High inflation brings stress, but now is when you need to stay rational. What does this have to do with a budget? Everything. Money is behavioral, and when you panic, you make mistakes. Those mistakes can be costly. So, look at the situation for what it is. Yes, prices are up. But there’s no guarantee they will keep going up or be sustained. So now is the time to stay rational and evaluate the situation for what it is. To do that, you have to look at your budget.

Look at your numbers

Next, look at what you are spending and what you are spending it on. Don’t make any decisions yet. Just analyze the numbers. Look at the necessary items first. Food, clothing, shelter, and transportation must be taken care of before anything else. Then take a look at what you should be doing but aren’t necessary to your immediate situation. These are things like investing, saving for children’s future tuition, and charitable giving.

Finally, look at the extras. These are budget items that aren’t necessary for survival and add no benefit to your financial future. You need to know the numbers on items like gym memberships, dining out, subscriptions, and hobbies. You’ve looked at the numbers, but before you start to make changes, look at one more thing.

Look at your values

As you decide if and where to make changes to your budget, ask yourself, “What’s important to me?” The answers may be simple. Maybe it’s that name-brand food item you are buying that could be replaced by something less expensive. Maybe it’s that gym membership you don’t care about anymore. But chances are there are items in each area of your budget that, with a bit of thought, you could either buy in a less expensive form or just get rid of it altogether.

The decisions don’t have to be made all in one day. Some may be big, like whether or not to sell an expensive vehicle for a cheaper one. Take your time and ask for help from a trusted source. Just remember, inflation doesn’t last forever. But while it’s here, don’t let it take over your life. Instead, stay calm, stay focused on the numbers, and remember what is most important to you. Following these three steps can help you keep your sanity and your money!