Inflation reached a 40-year high in May of 8.6%. The price of food is up 10.8% and gas costs an average of $4.88 a gallon. These drastic price increases have caused many Americans to feel financially strained.
I’ve been finding it hard to stick to the budget I created two years ago. If you’re frequently going over your budget too, it may be time to reevaluate your spending plan. A dollar just doesn’t go as far as it used to, so you might need to add some extra wiggle room in certain spending categories to account for inflation. Here are some tips to help you create a new budget that works for you.
Review Your Spending
The first step when revising your budget is to review your spending. Go through your bank and credit card statements from the past few months and figure out what you spend per month on average. Then divide up your monthly spending into different expense categories such as gas, groceries, housing, and entertainment. This will help you contextualize your spending and see exactly where your money is going.
Once you’ve tallied up your expenses, compare your spending in each category to the previous version of your budget. How much has your spending increased in each category? Can the increase be explained by inflation alone based on the current inflation rate, or is some of it caused by lifestyle creep?
For example, my grocery bill has jumped by about $50 per week. It would be easy to write off this increase as totally inflation-related. But I know I’ve been sneaking some extra impulse purchases into my cart like whipped cream and brownie mix because I’ve been stressed out lately.
To prevent lifestyle creep, I decided to increase my grocery budget by just $20 per week instead of $50. I don’t want to raise my budget too much and give myself permission to buy a bunch of unhealthy food I don’t need.
Decide How Much To Increase Your Budget
For each spending category, you’ll have to decide how much to raise your budget. Some expenses are fixed like your rent and car payment. You can’t easily cut back on these costs if they’ve increased. You’d have to find a cheaper apartment or car, which may not be possible in this high inflation environment.
But what you spend on some necessities is more variable, like groceries and gas. The price of both groceries and gas has risen substantially, but there are still ways to limit the impact on your budget.
You may be able to keep your grocery bill down by making more vegetarian meals, shopping at a cheaper store, or clipping coupons. You can try to make each gallon of gas stretch further by driving slower, combining multiple errands into one trip, removing heavy items from your car, and carpooling to work with coworkers.
My partner drives around a lot for work, which caused our gas spending to jump to $500 per month. However, when we analyzed our gas spending and driving patterns, we realized we hadn’t adjusted our habits enough to offset rising gas costs. We were still going on long weekend drives to the beach and forgetting to combine our errands into one trip to save gas. So before you adjust your budget, don’t forget to try some money-saving strategies to see if you can get your spending down.
Figure Out Where The Extra Money Will Come From
Once you decide how much to increase your budget, you’ll have to figure out where that extra money is going to come from. The easiest way to free up income is to cut back on nonessentials like entertainment, home decor, clothing, and random Amazon purchases. You probably don’t have to eliminate every single treat from your budget, unless you’re in the red and your expenses are exceeding your income. Just cutting back and reducing the number of times you get takeout or shop online each month will make a big difference.
Because the labor market is strong, now is a great time to pick up a side hustle like waiting tables or freelancing to bring in extra income. You could even ask for a raise at work to generate some extra cash flow. Since it’s hard to find workers right now, your employer may be willing to up your pay to avoid losing you.
Don’t Feel Bad If You Have to Delay Financial Goals
But if you don’t have any expenses you can cut out and you can’t increase your income right now, you may need to push back some of your savings goals. I haven’t made as many mortgage overpayments as I’d like this year due to rising costs. Don’t feel bad if you can’t make as much financial progress as you’d like right now, because many Americans are in the same boat.
Hopefully things will turn around and prices will plateau or decrease in the next few months. In the meantime, I’m trying to stay positive and keep working on my side hustles so I can increase my income to offset the effects of inflation on my budget.
What are you doing to limit the impact of inflation on your spending and budget? Share your tips in the comments section below!
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Vicky Monroe is a freelance personal finance and lifestyle writer. When she’s not busy writing about her favorite money saving hacks or tinkering with her budget spreadsheets, she likes to travel, garden, and cook healthy vegetarian meals.