How To Adjust Your Budget For Inflation

Has inflation had a noticeable impact on your life over the last few months? Are you feeling the weight of increased gas and food prices and pretty much everything else you purchase on a day to day basis? So are we! Inflation has been rising so fast over the last few months that the Federal Reserve is rapidly raising interest rates to try to combat it, as discussed in a previous blog. They recently just raised interest rates another 25 basis points, in effort to continue to slow down inflation. 

So with increased prices and, in turn, higher interest rates, many individuals are now taking a closer look at or re-thinking some of their financial choices. 2022 was quite a rollercoaster in the economy and the stock market, leaving many uneasy about the future of their finances, making it an especially good time to create a new financial plan or alter and refresh an older one. So, as households and individuals start to think about how to adjust for this increase in their budget, let’s discuss some ways in which they can do so. 

We saw a survey that found that “as of November, 63% of Americans were living paycheck to paycheck, according to a monthly LendingClub report — up from 60% the previous month and near the 64% historic high hit in March.” We found this data quite surprising and a reinforcement that having a budget is necessary. Take this opportunity to re-visit your cash flows and make sure that your cash outflows do not exceed your inflows. If you need help creating a budget that works for you, we are here to help!

First and foremost, when thinking about adjusting your financial decisions for inflation, your first thought should be how you can reassess your budget. If you haven’t already, take a good look at your budget to account for higher costs, for example, your monthly gas and grocery spend. By using the “bucket strategy,” you can separate your spending and savings into different categories to help you differentiate your wants versus your needs. Think about using an app or financial software to help you track your spending each month along the way.  While adjusting your budget and doing some spring cleaning, go back and make sure you aren’t paying for any unused subscriptions or other fees where you might be spending money unnecessarily. 

While these are only a few things you can do to adjust your finances for inflation, getting a handle on your financial “big picture” will ease your stress and tensions as you adjust to this more expensive cost of living. If you are feeling lost and need a “start of the year financial plan” to help sort out some of these topics, email us at info@shermanwealth.com or schedule a complimentary intro call here.