The term inflation evokes images of recession and economic uncertainty and it can be scary to some families. Especially those with uncertain income who are barely making ends meet.
These are the people who are the most in need of budgeting, but how can you budget when prices keep climbing? Let’s take a look at how to budget during times of inflation. We’ll also share a few tips to help you keep a little more of your money during inflationary periods.
But, before we get into this, let’s find out what inflation exactly is.
What is inflation?
Inflation is a word we often hear during a negative economical context. In short, inflation is an increase in the cost of daily goods and services.
While no one is willing to pay more for something then it is the usual price. A low inflation rate, which is about 2 percent, is generally a sign of a healthy economy.
However, there are times in our life when inflation gets out of control and things just got a lot expensive. So let’s discuss how inflation works and what strategies and tips we can use to fight it.
Type of Inflation
There are four types of inflation:
- Creeping Inflation
- Walking Inflation
- Galloping Inflation
1. Creeping Inflation
Creeping inflation is when the prices of all goods and services rise by 3 percent a year or less. According to the Federal Reserve, when prices rise by 2 percent or less, it helps the economy to grow.
2. Walking Inflation
Walking inflation is strong and destructive inflation which raises between 3 to 10 percent a year. It is harmful to the economy because it raises economic growth too fast. People start to buy more than usual to avoid tomorrow’s much higher prices.
3. Galloping Inflation
When inflation rises to 10 percent or more, it becomes absolute havoc on the economy. Money starts losing value so fast that businesses and employee’s income can’t keep up with prices.
The economy gets unstable and the government loses credibility so fast. This inflation must be stopped at all costs.
Hyperinflation is when prices rise to 50 percent a month. It is a very rare situation and mostly happens when the governments started printing money to pay for wars Zimbabwe in the 2000s is a good example of this.
Here are the seven easy to implement strategies and tips to help you create a practical budget during inflation.
1. Get an Idea of How Much Inflation Actually Costs
We hear of inflation, but we rarely understand how much it really costs. You won’t be able to understand how to budget if you don’t understand how it affects the price of goods.
It is important to understand how much the inflation rate could affect the price of goods over a set number of years at a specific inflation rate.
This will give you a more informed idea of how your cost of living will be affected over the next few years and help you come up with a more accurate and reasonable budget.
This will be especially important for spending categories that are the fastest hit by inflation such as clothes, gas, and housing among other things.
2. Have a Contingency plan
Another great way to fight inflation is to have a contingency plan in your mind. You can think about your contingency plan in terms of money or in lifestyle. But, it is quite the same thing – a subset of your money is required in any way during good times. So, when you are going through a bad time, you can redirect.
Having a contingency plan is always a great idea when going through bad times. The process of creating it is useful for motivating yourself to boost your funds, cut unnecessary expenses, emergency, and to find ways to improve your income stream.
It is never too late to create a contingency plan for your budget.
3. Get Creative
The next thing you’ll have to do is get creative with your spending. You will need to find ways to cut your expenses by going for alternative options. This may also mean swallowing your pride and considering options you may have not considered before.
Food banks are not only for the homeless, and some organizations will not only donate food but sell it at a discount as well. These are often perishables or close-dated items.
You might also have to consider going to Goodwill for certain clothing items. These are usually a great option if you’re looking for things like jeans or inexpensive winter wear. You can also find things like kitchen appliances and toys for the family there.
Learning how to cook could also be a lifesaver during those times. You also have to pay attention to the way you grocery shop. You will always pay a premium for prepared foods, so if you are buying a lot of frozen pizzas and treats, you are wasting money.
Everything from pizza to corn chips can be made from scratch and will cost you a fraction of what would’ve paid if you went the easy route. The price on base ingredients doesn’t go up nearly as much as prepared products during inflation as well, so that’s another way you can protect yourself.
4. Protect Your Investments
You will also need to look over your investment strategy during that time. If you are going to invest in bonds, make sure that you go with fixed-income products that consider inflation risks. Stocks are also a great option during those times as companies have to sell at the rate of inflation, which translates to greater sales and revenue for investors.
These are all tips that will help your household stay afloat during inflation. Don’t be afraid of it, and find ways to get ahead by being resourceful, reorganizing your finances, and being mindful of waste.
5. Cut Unnecessary Expenses
If inflation becomes overwhelming to your budget, consider cutting off extra expenses. For example, you can work out in your house and cancel your gym subscription.
You can stretch your time length between hair appointments by a week or two. You can also save some money by using public transport a few times a week. Try finding these little opportunities in your daily like to save some extra money.
Other small sacrifices can be useful when you’re dealing with inflation. Try cutting off your daily coffee habit, or reduce it, or make your own at home. Don’t buy extra stuff at the grocery store, try taking shortcuts to your home to save gas, or skip the second glass of wine while hanging out with office colleagues or friends.
6. Look for Free Alternatives
You can beat inflation and save extra money by exploring cheap and free things offered in your area.
Like you can hang out in the local park rather than going on paid ones. Or try museums with free entry or any outdoor activity that is free or at least cheap so you can enjoy the cheap thrills.
Your friends could be dealing with inflation as well and willing to save money, so you can rent a movie and watch that at home rather than going to the cinema. Cook your food at home, rather than eating out or ordering online. It’ll help you quite enough in saving a few more bucks.
7. Remember Your Priorities
While dealing with the outcomes of your living by inflation, it is important that you must keep your financial priorities in mind. Don’t rely on your credit cards, accumulating debt that you have to deal with later in your life.
Always save and invest your money. Remember, you have priorities in life, and you have to retire one day. These savings will help you not only in retirement but also in emergencies and hard times.
You don’t have control over economic decisions and conditions, but you have control over yourself. This same advice will help you in deflation.
Inflation is a thing a lot of people face at least once in their life. Whether you are a business owner, an entrepreneur, or an employee. Well, that is not a thing to worry about to feel like it is untreatable.
In this article, we have mentioned seven easy to implement strategies and tips to help you out with inflation. Find out at which part you are lacking and fill that gap with these strategies.
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Usman Raza is the co-founder of Christian Marketing Experts and marketing strategist working with various brands online, and the content marketing manager of PSD to WordPress and a packaging design company. He is devoted to helping small businesses bridge success gaps by providing in-depth, actionable advice on digital marketing, SEO, and small business growth. Follow him on Twitter @usmanintrotech.