When the economy is struggling and inflation is high, the rising costs of goods can make it difficult to rein in expenses. Saving money during times of inflation might seem impossible when you need to pay for your mortgage, health insurance, food, and a car payment. These expenses add up quickly. It's possible, however, to save money during inflation by creating a budget. Here are some money saving tips to keep in mind while you make a budget.
What Is a Budget?
A budget is a type of spending plan that takes expenses and income into account. It's a detailed estimate of the amount of money you'll earn and spend in a specific period of time. While you can create an annual budget, a monthly budget is more effective when you're trying to take control of your household spending.
Not every budget is the same. The budget you make can involve writing down a lengthy list of your expenditures or focusing your attention on certain categories. You could choose to create your budget on a spreadsheet or write it out by hand.
Of all budget techniques available to you, among the best is the 50/30/20 method.
How to Make a Budget
You can create a budget in six simple steps, the first of which is to calculate your net income.
Calculate Net Income
Your net income is the first piece of information you should know if you want to make an effective budget. It's your total wages minus any deductions for employer programs and taxes. If you use your entire salary in this calculation, you could overspend by not taking taxes into account. In the event that you're a self-employed individual, contractor, freelancer, or gig worker, take comprehensive notes of all contracts you sign to keep track of any irregular income you bring in.
Track Spending
Now that you know what your net income is, you should track all of your spending. Tracking your expenses will make it easier for you to identify what you're spending a large amount of money on and where you can make cuts to save money.
Start by listing all of your fixed expenses, which include your utilities, car payments, and housing payments. You should then list all variable expenses, which involve any costs that can vary from month to month. Examples of variable expenses include entertainment, groceries, and gas.
The easiest expenses to cut back on are variable ones. Bank and credit card statements can help you itemize monthly expenditures. Use budgeting spreadsheets, a smartphone app, or a pen and paper to record all of your daily spending.
Set Reasonable Goals
The next step in the budgeting process is to set reasonable and realistic goals. Before you look through all of the information you've been tracking, write down a list of any short-term and long-term financial goals you have. An example of a short-term goal involves paying down your credit card debt in two or three years.
Long-term goals can be anything from saving for retirement to saving for your child's college tuition. Keep in mind that your goals don't need to remain the same forever. On the other hand, identifying what your goals are should keep you motivated to maintain your budget.
Make a Comprehensive Plan
Now it's time to make a comprehensive plan with everything you've done up to this point. Identify what you're currently spending and what you would like to spend. You can estimate what your expenses will be over the next few months based on your fixed and variable expenses. With these expenses in mind, compare them to your financial goals and net income. You could then set spending limits for each expense category.
Expenses could be separated into additional categories of needs and wants. If you have a daily commute to work, gasoline would be a need. In comparison, a subscription to Netflix would be a want.
Adjust Spending to Maintain Budget
At this point, all of your spending and income has been documented, which gives you the opportunity to make adjustments that will keep you from overspending in the coming months. Cutting back on the things you want but don't need is a great way to save money and will help you stick to your budget. Maybe you can cut a subscription or purchase a less expensive brand of food.
If you find that the numbers still aren't where you want them to be, try making adjustments to your fixed expenses, which could involve shopping around for a less expensive rate on your homeowners insurance or auto insurance. Even the smallest of changes can help you save a considerable sum of money over time.
Regularly Review Your Budget
Now that you've set your budget, you should review it regularly to make sure that you're not overspending or taking on any new expenses that you didn't account for. Only a small number of components in your budget are impossible to reduce. Over time, your expenses could change. You might also get a new job with a higher salary. These changes should be reflected in your budget.
How to Budget During Inflation
During inflation, costs are higher for practically everything. If you want to further improve your budget and save money, consider:
- Completing an energy audit to find where you can reduce costs
- Eliminate any unnecessary fees and subscriptions
- Shop smarter at your grocery store
If you can get your budget under control and reduce your expenses, you'll be able to free up money for investing. While it might seem like inflation is the wrong time for you to make investments, keep in mind that there are several types of investments that are regularly used as hedges against inflation. Consider real estate, dividend-paying stocks, and bonds during inflationary periods.
Now that you know some tips for saving money and how to create a budget, you should be well-equipped for times of inflation. Tracking your spending and setting reasonable financial goals will help you avoid issues of unexpected costs and overspending. Of course, our team here at Attentive Investments is always happy to help you with your financial questions as you build a solid foundation for your future!