Dear Tori:
I have started an emergency fund, put my bills on auto-pay, and even started budgeting every month. I was just starting to feel really confident about sticking to my budget, but now with the cost of many of my household essentials on the rise due to inflation, I’m worried that I’m going to lose all that progress.
Any advice on how I should adjust my spending habits to help with inflation…without cutting back on all the things I love and need?
This is a question I have received countless times over the last few months, and I have good news and bad news.
The bad news? While no one can predict with absolute certainty how long this season of inflation will last, it’s pretty safe to say that inflation is going to be around for quite a while longer.
The good news is that there are ways that you can adjust your spending in order to reduce the financial strain of inflation. And the good news doesn’t stop there: because you are being proactive about making those adjustments, you will be better prepared to weather this economic season and will potentially end up saving some money by the time prices begin to drop.
There’s no denying that inflation sucks, but it doesn’t have to derail your financial plans. Here are four ways that I would suggest adjusting your spending and saving in order to get the most bang for your buck, even in a season of inflation.
Put your savings into a HYSA
First things first, if you have not done so already, consider transferring your savings into a high-yield savings account.
When we are dealing with inflation, we want to find every opportunity to stretch our dollar, and a HYSA does just that. A HYSA is just like any other savings account, but it allows your money to earn more interest than in a traditional savings account – in some cases up to 18x more! In other words, letting your savings sit in a HYSA allows your money to grow quicker and work harder for you, all without any additional effort on your part. So as inflation tacks on dollars to your weekly grocery bill, so does your HYSA to your savings.
A HYSA is also the perfect place to stash the emergency fund you’ve been working on so that it continues to appreciate in value while it sits in an account waiting for a rainy day.
Review your budget
You’re already off to a great start since you have been proactively budgeting every month – way to go! But as you notice that your dollar is not going quite as far as it used to, use this opportunity to practice making adjustments to your budget – a skill that will serve you for decades to come.
I want you to set aside some time to review the budget that you have created. You mentioned that many of your household essentials have gone up in price, so you already know that your budget no longer works for this inflated economy. But now we want to identify exactly where inflation is making the biggest impact on your spending.
Yep, it’s time to pull up your bank accounts (or, your Personal Capital account where everything is aggregated) and start reviewing some charges to find out what household essentials have increased in price, how much they have increased, and where you are going over-budget.
I know that this process can feel tedious and discouraging – after all, you just got this budget really fleshed out a few months ago. But we won’t be able to appropriately adjust our spending to deal with inflation without first knowing where inflation is hitting us the hardest. So consider this to be my way of giving you permission to make this process as enjoyable as possible.
Put on your favorite pajamas, play some relaxing music, put on a face mask, and get ready to get some one-on-one time with your budget – your financial goals and future self will thank you.
Identify where you can save
Once you have identified which of your household essentials have increased the most in cost, you can start to find ways to adjust your spending habits appropriately so that you feel the most stretch in your dollar.
For many households, inflation is hitting them the hardest at grocery stores and the gas pump, so let’s try and find some ways that we can save on those expenses.
Maybe you could save some money at the grocery store by buying generic products over name-brand.
Perhaps meal planning will allow you to buy only the products you need most rather than repeatedly buying a $4 bag of organic spinach that keeps going bad in the back of the fridge (I can’t be the only one who does this, right?).
Maybe you could stop by the local farmers market to find more affordable grocery essentials.
Consider buying certain items in bulk when it allows you to buy items at a lower price.
Maybe there is a way that you can carpool to work with a coworker, share a car with a spouse, or utilize public transportation to save on gas.
Get creative with the ways that you adjust your spending on essentials and give yourself time to figure out works for you and what doesn’t.
Identify where you can cut back
As you look at your budget you may also notice that there are some additional areas of spending that aren’t necessarily “essential” that could be adjusted in order to save money.
Whether it’s a gym membership, a monthly nail appointment, or a certain shopping subscription that offers 2-day shipping, there may be certain subscriptions or recurring purchases that you may be able to cut back on – even just temporarily – during this season in order to save a little extra money.
Now, I don’t want you to feel like you have to ruthlessly cut out every purchase and expense that is “not essential”, as these are often the areas of spending that bring you joy and a sense of fulfillment. But identifying these optional areas of spending can be valuable as it allows you to see where you can save additional money if and when you absolutely need to.
Adjust your budget
Now that you have figured out some ways to save money, it’s important that you appropriately adjust your budget to reflect those changes in spending.
Not only will this make it easier for you to stick to your updated budget, but it will also help you identify changes in price and spending as this season of inflation continues – that way you can make appropriate adjustments as needed.
I know that the idea of weeding through your purchases and expenses from month to month can sound exhausting and time-consuming, but it’s a really important part of coming out on top of inflation.
Fortunately, Personal Capital makes it easy to create a budget, track your spending, and identify changes in expenses from month to month so that you can stay on track with your budget and financial goals. I always say that your budget is only as good as your ability to stick to it, and Personal Capital is making it easier than ever – even in a challenging economic season like this one.
Looks like the economy isn’t the only thing inflating – I can see your financial confidence growing from here.
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Personal Capital compensates Tori Dunlap of Her First $100k (“Author”) for providing the content contained in this article. Compensation not to exceed $500. Author is not a client of Personal Capital Advisors Corporation. Additionally, in a separate referral arrangement between Author and Personal Capital Corporation (“PCC”), Author is paid $70 and $150 for each person who uses Author’s webpage (www.HerFirst100k.com) to register with Personal Capital and links at least $100,000 in investable assets to Personal Capital’s Free Financial Dashboard. As a result of these arrangements, Author may financially benefit from referring potential clients to Personal Capital and/or be incentivized to present blog content that is favorable to PCC. No fees or other amounts will be charged to investors by Author or Personal Capital as a result of the Referral Arrangement. Investors that are referred to PCC and subsequently subscribe for investment advisory services provided by PCC’s affiliated adviser, Personal Capital Advisors Corporation (“PCAC”) will not pay increased management fees or other similar compensation to Author, PCC or PCAC as a result of this arrangement. The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
