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How To Budget With Inflation For The New Year!

How To Budget With Inflation For The New Year!

November 21, 2023

Let's start by talking about some basic things before we plan our budget for the new year. Inflation is the rate at which the general level of prices for goods and services in an economy is rising, leading to a decrease in purchasing power. In simpler terms, it means that over time, the cost of things tends to go up, and each unit of currency buys fewer goods and services. When inflation is high, your money doesn't go as far as it used to, and you may need more money to buy the same things.

When we're making a budget, it's essential to think about how inflation might affect the cost of things we buy. Planning ahead helps us manage our expenses better and avoid surprises when prices go up unexpectedly. In this blog, we'll explain how to include inflation in our budget for the new year.

Where Is Inflation Affecting People The Most

Inflation is a significant problem that is greatly hurting people's finances by putting pressure on everyday expenses that are necessary like food prices, oil and natural gas prices, car prices, and more. These are all essential areas of life where people have to spend a lot of money, and when prices increase, it causes a lot of financial strain.

All of these increases in prices are causing people to have less money to save or spend on other things. As a result, many people are struggling financially and facing difficult decisions about how to make ends meet. Despite these rising costs, you can prioritize these essential expenses and find ways to save money during inflation for the new year.

While U.S. inflation rates have been decreasing in the last year, it is still higher than many people are comfortable with. Inflation can be a significant problem that impacts people's finances by putting pressure on everyday expenses that are necessary, like food prices, oil and natural gas prices, car prices, and more. These are all essential areas of life where people have to spend a lot of money, and when prices increase, it causes a lot of financial strain.

Inflation also impacts low-income households disproportionately, so even in years when national averages start to decrease, many people will be feeling the effects of inflation. Studies indicate that low-income households bear the brunt of inflation due to various factors. These households allocate a higher proportion of their income to essential needs like food, gas, and rent—categories experiencing inflation rates higher than the average. On top of that, they have limited avenues for cost-cutting. While middle-income households might respond to price increases by opting for more affordable alternatives or choosing generic brands, low-income households, often already reliant on the least expensive products, lack the same flexibility in adjusting their consumption patterns

All of these increases in prices are causing people to have less money to save or spend on other things. As a result, many people are struggling financially and facing difficult decisions about how to make ends meet. Despite these rising costs, you can prioritize these essential expenses and find ways to save money during inflation for the new year.

How to Adjust Your Budget To Protect Yourself From Inflation 

Safeguarding your budget against the impacts of inflation requires careful consideration and strategic adjustments. Below, we outline specific areas where you can employ budgeting strategies to fortify yourself against the challenges posed by inflation.

Tips For Budgeting Groceries 

As prices continue to rise, it's more important than ever to be smart about how you budget for groceries. Here are some tips for keeping your costs down:

  • Create a Meal Plan: Plan your meals for the week in advance. This allows you to make a detailed shopping list based on your actual needs, reducing the likelihood of impulse purchases.
  • Set a Realistic Budget: Determine a realistic budget for your groceries based on your income and spending priorities. Be mindful of any dietary restrictions or preferences that may affect costs.
  • Shop with a List: Stick to your shopping list to avoid unnecessary purchases. Focus on buying only what you need for the planned meals, reducing the chances of overspending.
  • Buy in Bulk for Non-Perishables: Purchase non-perishable items in bulk when possible. This can save money in the long run, especially for items with a longer shelf life.
  • Take Advantage of Sales and Discounts: Keep an eye on sales, discounts, and promotions. Plan your purchases around these deals to maximize savings on essential items.
  • Compare Prices: Compare prices across different brands and stores. Sometimes, generic or store brands offer similar quality at a lower cost than name brands.
  • Consider Seasonal and Local Produce: Opt for seasonal and locally sourced produce, as they are often more affordable and fresher than items that need to be transported from long distances.
  • Limit Convenience Foods: Minimize purchases of pre-packaged or convenience foods, as these are typically more expensive than preparing meals from scratch.
  • Check Unit Prices: Compare unit prices on shelf labels to determine the most cost-effective option. Sometimes, buying in larger quantities may be more economical.
  • Utilize Loyalty Programs: Take advantage of grocery store loyalty programs to earn discounts or cashback on your purchases.
  • Meal Prep and Freeze: Prepare meals in batches and freeze portions for later use. This can help prevent food waste and save money by utilizing ingredients efficiently.

Tips For Budgeting For Energy Bill

When prices for energy commodities like heating oil, natural gas, and gasoline are on the rise, it can be hard to keep your budget in check. Here are a few tips for budgeting your energy expenses during times of inflation.

  • Take a look at your energy usage and find ways to conserve. Turn off lights when you’re not using them, unplug electronics when they’re not in use, and make sure your home is properly insulated.
  • Educate yourself about government assistance programs that can help low-income families pay their energy bills. There are many programs available at both the state and federal levels, so be sure to research what’s available in your area.
  • Be proactive about monitoring your energy usage and make changes where necessary. If you know that you’re going to be using more energy than usual in the coming months, try to budget for it ahead of time.

Tips For Budgeting Car Expenses

When it comes to budgeting for vehicle expenses during periods of inflation, there are a few key things to keep in mind. First, new and used car prices are likely to continue increasing, so it may be wise to wait if you can. Car repairs are also likely to get more expensive, so it’s important to save up for those costs as well. Here are some tips for reducing car expenses:

  • Emergency Fund: Maintain an emergency fund specifically for unexpected car expenses. In an inflationary environment, prices can rise unexpectedly, and having a financial buffer can help you manage sudden repair or maintenance costs.
  • Regular Maintenance: Stick to a routine maintenance schedule for your car. Regular maintenance can prevent larger, more expensive issues from arising. Addressing small problems early on can save you money in the long run.
  • Fuel Efficiency: Keep your car well-maintained for optimal fuel efficiency. Inflation can also affect fuel prices, so improving your gas mileage can help offset rising costs.
  • Insurance Shop: Periodically review your car insurance policy and shop around for the best rates. Insurance premiums can increase, so exploring different options might save you money.
  • Consider Alternative Transportation: Explore alternative transportation options, such as public transit, biking, or carpooling. This can help reduce overall transportation costs, especially if inflation is affecting fuel prices.
  • Evaluate Financing Options: If you're financing your car, be mindful of interest rates. In an inflationary environment, interest rates may fluctuate. Consider refinancing if it can save you money in the long term.
  • Compare Prices: Compare prices for parts, services, and accessories from different providers. Inflation can lead to price variations, and shopping around can help you find the best deals.
  • Plan for Upgrades: If you're planning to upgrade or replace your car, consider the potential impact of inflation on vehicle prices. Planning ahead allows you to make informed decisions and possibly secure a better deal.
  • Adjust Budget Periodically: Regularly review and adjust your budget to account for changes in inflation rates, fuel prices, and other economic factors. Flexibility in your budgeting approach is key!

Additional Ways To Save Your Budget During Inflation

In addition to the commonly affected areas discussed earlier, it's essential to recognize that inflation has a pervasive impact across various industries, influencing every aspect of your budget. You can be proactive by addressing these challenges posed by inflation in your budgeting process! Here are some simple ways you can get ahead of inflation for next year’s budget:

  • If you have any subscriptions that you don't use, cancel them. Check on your streaming services! Do you use YouTube TV anymore? Cancel it. Are there still magazines being sent to your home that you never read? Save money by canceling. 
  • Make room for investing. Even if it's just a small amount each month, start putting money away so that it can grow over time. Pennies turn into dollars if you follow smart investing principles.
  • Coupons, Groupons, and more! There are tons of great deals to be had if you're willing to clip a few coupons.
  • Learn coffee shop or restaurant savings hacks. For example, many places offer discounts if you buy food or drink items in bulk.
  • Keep a closer eye on your monthly budget to pivot if necessary. If your expenses suddenly go up, see if there are any ways you can cut back on your spending.

Can Inflation Be Good for The Economy?

Inflation has a lot of complex connotations and even different meanings depending on the circumstances. But most folks see it as being something to be wary of when it comes to personal expenses. However, many economists, business people, and politicians argue that moderate inflation levels are needed to drive consumption, assuming that higher levels of spending are crucial for economic growth. A low, stable inflation can encourage people to spend money, which can lead to economic activity and growth. 

The usual practice of the Federal Reserve involves aiming for an annual inflation rate in the United States. The rationale behind this approach is rooted in the belief that a gradual rise in prices is advantageous for businesses, ensuring profitability, and discourages consumers from delaying purchases in anticipation of lower prices. In fact, some individuals argue that the main purpose of inflation is to ward off deflation.

Get Professional Help Budgeting for Inflation

If you're reading this, chances are you're responsible for making financial decisions for your household and wondering how to survive high inflation. These decisions can be intense and daunting, especially when inflation makes things more complicated. That's where Benefit and Financial Strategies comes in. We're a resource that you can turn to for help with financial planning. We have years of experience in the field, and we're always here to answer your questions. So don't hesitate to reach out to us if you need help getting started on your financial plan. We're happy to assist you!