How to Budget During Inflation

Overheard at Costco recently: “Wow. A bag of avocados is $10.99 now. We used to get ‘em here for $6.99. Guess we’re not buying avocados.”

It was hard not to overhear it. No eavesdropping required. The speaker was the wife. The overhearer was the writer, who is – you guessed it – also the husband who went home without avocados.

We’re all learning some hard lessons about inflation right now. Seems as if the cost of darn near everything is more than it used to be, with the possible exception (if you’ll excuse the old expression) of the price of beans in Bombay.*

In fact, we’re in the midst right now of the highest U.S. inflation rate (8.6% as of May 2022) in 40 years. No wonder we’re feeling the pinch.

Looking for ways to cut expenses? We’ll get to some suggestions in a moment. But first …

What Inflation Does to Your Money

In a nutshell, inflation reduces the purchasing power of your moola by raising prices on goods and services across the economy and over a period of time. Your income doesn’t change (unless you’re willing to work an extra job on the side), but how much you can buy with it does.

That hurts, especially now. We’ve just come out (or we’re just coming out) of a couple of years of COVID-related hardships in which many of us had to learn to live without restaurants and new clothes and faraway vacations. It felt like maybe we finally could see a glimmer of light at the end of that tunnel.

And then inflation happened. Now the money we might be more willing to spend just isn’t going as far as it used to.

You already know that if you’ve been in a stare-down with an $11 bag of avocados. And lost.

But you might not be aware that your savings, your pension, and whatever Treasury notes you might have are similarly affected. Their value decreases during a period of inflation like this. And making matters worse, if you’ve taken out a loan with a variable interest rate – credit cards, home equity lines of credit, some student loans and some mortgages, all come with variable rates – that rate is likely to increase during inflation. Your monthly payments will be higher.

For the purposes of this story, we don’t need to get into exactly how and why inflation happens or low long it’ll go on. Those are subjects for another day and a deep-thinking economist. Our concern is how to deal with it in the here and now.

Tips for Cutting Expenses During Inflation

Hands down, the best way to fight today’s skyrocketing prices is by sticking with a monthly spending plan.

That’s right. You need to create a successful budget. And if you already have one, there’s no time like inflation to tighten it up.

Start with the things you can’t easily change, such as your mortgage or rent and your car payment. Figure out how much you’re spending on those sorts of fixed expenses every month and make sure you have enough to meet those bills first. Then see how much money is left.

That’s where you can make a difference. That’s where you have some control in your struggle against inflation. The decisions might be hard, because you’re likely spending some of that money on things that aren’t exactly necessary but are a part of what makes your life good. You know, restaurants, movies, travel, gifts.

Avocados.

Effective budgeting doesn’t mean you have to give all of that up. It just means you can be smarter and more disciplined about how much you spend on them. You can do this!

Here are some ways to start.

Groceries

Food, of course, is an essential expense. You gotta have it even when it costs more. But the cost of groceries for the family can be cut with a few adjustments and the right kind of budgeting. In fact, this is a great place to start our rundown of tips to fight inflation and make your disposable income go farther.

  • Know what you already have before you walk through the door of your neighborhood supermarket. No need to buy something that’s already in your pantry. Don’t be caught at the store wondering whether you need to stock up on bananas, for example, and then discover a bunch of ripened bananas on the counter when you get home.
  • Buy in bulk. It’s cheaper in the long run because the cost per unit is lower. Costco, Sam’s Club, BJ’s Wholesale Club, Walmart and others make it easy to buy big. (Some of them require a small fee for an annual membership.) If you have the room in your freezer and pantry, you can bring home enough meat, poultry, cereal, pasta and other basic foodstuffs to keep you from a return visit for a while. As much as $11 for a bag of six avocados at Costco feels high, they’re $2 apiece at the local non-bulk grocery store last time we looked, and that’s even higher. Do the math.
  • Organize your coupons. Check the daily newspaper, mailings, emails, and in-store flyers and have them at the ready when you check out. If you aren’t already doing it, you’ll be surprised at the available savings.
  • Be vigilant about sales. Every grocery store advertises them, even the bulk sellers. If a sale starts on Thursday, don’t do your shopping on Wednesday. It’s worth checking into some of the mobile apps such as Reebee, Checkout 51, Flipp, Grocery iQ and others for notices about sales and rebates.
  • Plan your meals. Knowing exactly what you need for your upcoming dinners (and itemizing those needs on a specific shopping list) might help you resist the impulse buys that don’t fit the plan.
  • Minimize your fresh food purchases. Hard to do, yes. But fruit, vegetables, meat, and poultry generally are more expensive fresh than frozen, and they’re among the fresh food items that have become even pricier lately. Lean toward the non-perishables.
  • Buy store brands. In most cases, the quality won’t be significantly worse than you’ll get from a more expensive major brand.
  • Be aware of food categories that have risen in price more dramatically than others. Granted, that seems like every food category these days. But according to the Bureau of Labor Statistics, items with the highest price increases from a year ago include milk, beef, butter, eggs, chicken and freeze-dried prepared foods. If you can stomach the alternatives, you might save a few bucks.

Dining Out

There’s really no way to sugarcoat it. If cutting expenses during inflation is important to you, dining out a lot isn’t the smartest way to do it. And that’s a bit of a bummer after the last couple of years of pandemic, stay-at-home eating. Just when you thought it was safe to go back to restaurant food …

The average cost of a full-service meal in a restaurant has increased by 9% in the last 12 months, according to a Consumer Price Index report. Ordering take-out is up, too, though not by quite as much.

Still, as with groceries, there are ways to maybe squeeze the cost of an occasional restaurant meal into your budget. If you find yourself with a menu in your hand:

  • Split an entrée with your dinner companion. Sometimes, half a steak is enough.
  • Skip the entrée altogether and make do with an appetizer and a salad.
  • Drink the water! Leave the wine for another time.
  • Snack before you go. Take the edge off your hunger with a candy bar or a few crackers with cheese. It might keep you from ordering as much.

As with groceries, be mindful of items that have become more costly of late. A recent study by SpotOn found that in the six months from October 2021 to April 2022, some popular menu choices have increased in price more than others. Among them are seafood (crab, lobster and prawns in particular), tacos, pizza, wine and even Coca-Cola and Diet Coke.

Not surprisingly, avocados also are on the SpotOn list of suddenly-more-expensive restaurant items.

Some good news, though: The price of French fries hasn’t changed much.

Getting Around Town

The simplest way to economize on gasoline? Drive less. You’ll save more.

But you knew that, of course.

The fact is that most of the advice we can offer about managing the high price of gas is obvious. Use alternate methods of transportation (ride a bike, take a walk, use public transit such as bus, subway, light rail, etc.) Carpool when you can. Work from home when possible.

They’re all good strategies. They all can make a difference.

Here are a few others. Some of them relate to the simple ‘drive less’ mantra but might not be quite as evident. Still, they can help.

  • Don’t go shopping so often. But when you do hit the stores, buy more of what you need so you’re not driving back to the mall again as soon.
  • Combine trips. Stop at the grocery store and the dry cleaners on the way home from picking up the kids at school.
  • Change or clean the air filter in the car. When it’s dirty, your gas mileage goes down.
  • Make sure your tires are properly inflated. The right air pressure maximizes mileage.
  • Get rid of the excess stuff in the trunk and the back seat. The more weight the car carries, the more its gas mileage suffers.
  • Use a mobile app such as GasBuddy, Fuelio, Waze, Gas Guru, AAA TripTik Travel Planner or others. They can steer you to the cheapest gas near where you are, and often provide discounts.
  • Put gas in the tank more often, but don’t always fill up. Sounds counter-intuitive and it’s a bit of a risk. But when the price at the pump feels extraordinarily high, you can save a little then and there by buying fewer gallons, and hope the price has dropped by the next time you need fuel.

Vacations

Remember that comment about avocados at Costco? It came, as it happens, shortly after this exchange between the same two people, this time at the Costco gas pump before they went inside to do their bulk grocery shopping.

She: “$4.69 a gallon? That’s about the same as we’d pay at King Soopers.”

He: “$4.69? Seems cheap compared to what we were paying in California.”

And it was. A fill-up in the California desert a week and a half earlier came with an $8.84 per gallon price tag. It was slightly less expensive than that on the coast, but still eye-popping.

Yes, the happy couple drove their gas-guzzler halfway across the country and back – a total of some 2,400 miles. Which begs the question: What were they we thinking? Maybe that should be Exhibit A under a headline in a converse story: ‘How NOT to Budget During Inflation.’

Do as we say, not as we did at the Death Valley filling station.

So, fly or drive on your next vacation? We probably made the wrong choice, although there really isn’t a one-size-fits-all answer. It depends in part on where you want to go. But here’s a general rule of thumb: If you’re traveling with more than a couple of companions or family members and your destination is within about 800 miles (which, as you know by now, California was not), you’re probably better off driving, even with these arm-and-a-leg prices at the pump.

But if it’s just one or two taking the vacation, then plane tickets from a no-frills airline might be more economical. Of course, inflation has affected airfares, too. Even before the heavy summer travel demand set in, the cost of domestic flights was up by an average of about 25% over a year ago.

Bottom lines: Shop around and plan ahead.

If you drive, our earlier advice about maximizing your mileage still applies: check the air pressure in the tires, get rid of unnecessary weight, keep the air filter clean and get the car tuned up before you go.

And here’s one more to keep in mind for all that highway driving: a 75-mph pace isn’t fuel efficient. You’ll get the best mileage at around 50 mph.

Some other suggestions that can help keep the cost of a vacation from getting out of control:

  • Book flights early. Generally, you’ll find better fares if you can commit to an itinerary at least six weeks in advance.
  • Be flexible about when you can fly. Domestically, fares usually are less expensive for Wednesday flights and more expensive for Sunday flights.
  • Schedule your trip so that you aren’t traveling during peak times such as holiday weekends. You’ll likely find better rates in the early fall than in mid-summer.
  • Compare the cost of flying or driving to Amtrak or bus travel. That’s part of shopping around and planning ahead, too.

And remember that you don’t always have to go beyond the horizon for a great getaway. A staycation at a resort or hotel or state park near home can be just as fabulous.

Subscriptions

COVID made us change a lot of habits over the last few years. Forced to stay at home, we found new ways to entertain ourselves and safe ways to acquire the necessities of life.

We subscribed. In some cases, we over-subscribed.

Netflix, Disney+, Hulu, Amazon Prime Video … They made it convenient to watch from home when the theaters were closed. But these days, almost all of them are increasing their monthly rates.

And the monthly home deliveries of meal kits, groceries, alcohol, dog food, cosmetics, new clothes … We paid extra back then to avoid the contagious crowds at our old retail stompin’ grounds. That isn’t such a priority now.

It might be time to unsubscribe.

Part of budgeting is making tough decisions – choosing between what’s necessary and what you might be able to live without. As part of that process, it’s worth adding up how much you spend on a monthly basis on your streaming and retail delivery services. You might be surprised.

There are easy ways to do it. Apps such as Truebill can identify all your subscriptions by scanning your bank account. Getting rid of some or all of them will help you cut expenses and save more of your discretionary income.

Utilities

Electricity, water, natural gas … Chances are, your utility bills already are, or soon will be, going up, especially now during inflation and air conditioning season. But there are savings to be had in how much of them you use and how much you pay to use them.

You’ve already made a good start if your household appliances carry an ENERGY STAR label. A joint program of the Department of Energy and the Environmental Protection Agency, ENERGY STAR products can save anywhere from 20% to 60% on energy use.

Other ways to cut some chunks off the monthly utility bills include:

  • Switch to a smart thermostat such as Google Nest, Ecobee, Honeywell Home, Emerson Sensi or others. It can save you as much as $180 a year.
  • Install LED light bulbs if you haven’t already. They last longer and they use about 75% less energy than traditional incandescent bulbs.
  • Put the washing machine dial on ‘cold water.’ You save the energy it takes to heat the H2O.
  • Make sure the dishwasher is full when you run it, and use the air-drying option rather than the heat-drying option.

If you’re having trouble with the bills, talk to the utility company. Don’t be afraid to ask for discounts and explore the options. You might not know about a sliding scale of discounts (depending on the customer’s income) many companies offer. Some will arrange payment programs for customers who are a month or two in arrears. You might even be eligible for a debt forgiveness program from your utility company. But you have to ask!

One more thing: Your cell phone isn’t considered a utility, but it’s worth looking into alternatives to your data plan when the bills start to weigh you down. There are a number of prepaid service plans that make an unlimited data plan look downright extravagant. If you have access to WiFi most of the time, they make some sense.

» More about: How to Save on Utilities

Insurance

Paying your car and home or renter’s insurance bills probably has become routine over the months and years you’ve been covered. But pay attention. If those rates haven’t risen already this year, there’s a good chance they will in the near future. Like nearly everything else, they aren’t immune to inflation.

So right now, when you’re creating or re-assessing your monthly budget, might be a good time to explore less expensive policies that might not dramatically decrease your protection.

Some moves to consider:

  • Start with your current policy holders. Ask if there are ways you can lower your premiums. Make sure they’re keeping you in the loop about any discounts for which you might be eligible.
  • Shop around. Find out if other insurance companies offer opportunities to bundle home and car policies, for example, that your current company doesn’t.
  • Ask every insurance salesperson you contact about his or her company’s customer loyalty programs, and how they might help you cut costs.
  • Look into internet marketplace sites such as EverQuote, Policy Genius or Experian’s comparison tool to see a number of auto insurance options in one place at one time. By answering some simple questions, they can make recommendations for you.
  • Increase the deductible on your policies. It’s a risk, but you can reduce your insurance premiums if you’re willing to. (The deductible is what you pay out of pocket before the insurance provider’s coverage kicks in.) For example, according to a survey by InsuraQuotes, a car owner can lower his or her monthly premiums by 8-10% by increasing the deductible from $500 to $1,000. You can do that with your home insurance, too. If you do it, be sure you can afford the extra out-of-pocket expense, if and when it becomes necessary.

The same basic principles apply to healthcare. Consumer spending on healthcare rose 9.7% in 2020, according to the most recent data from The Centers for Medicare and Medicaid Services. That was mostly due to the pandemic, so it’s difficult to assess inflation’s impact on the cost of health insurance so far this year.

Nonetheless, HealthCare.gov, the Affordable Care Act marketplace, can offer information on plans that might compare favorably with your current health insurance.

Housing

Earlier, we called your mortgage or rent payment a “fixed expense.” And it is, in the sense that it will stay fixed on the list of ‘necessity’ bills you’ll have to pay every month. But it doesn’t mean the amount will stay the same. Your payment isn’t likely to go down, but it sure can go up, especially if you’re renting.

Last year, rent prices increased nationally by about 12% from 2020, and they’re already up about another 5% this year.

If you can manage the rent you’re paying now, you can try to negotiate a longer lease to lock in a monthly rate and put off future increases for a while. It’s a bit of a longshot, but your landlord might even agree to lower your rent in exchange for the security of knowing you’ll remain a tenant for the foreseeable future.

Otherwise, you might need to consider downsizing to a smaller house or apartment, perhaps in a less desirable location, or take in a roommate to help with the rent or mortgage.

If the mortgage payment is becoming a problem, it might be worth exploring a refinance. Could be you’re paying more than the current interest rate.

Getting Help with Your Budget

The pandemic was hard and inflation isn’t easy. It really can feel like a double whammy to your finances right now.

But it isn’t hopeless. There is help available whether you’re already in over your head or just need some guidance in putting a budget together or tweaking the one you’re already using. A nonprofit credit counseling agency such as InCharge Debt Solutions offers free credit counseling for more tips on cutting expenses and increasing income when times are especially tough.

And if you need options such as debt consolidation or a debt management plan to get back to making ends meet, a credit counselor can help there, too.

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*For the record, in mid-June the average price of the commodity market quantity of beans in Mumbai, which is what Bombay has been called since 1995, was 5000.00 INR/Quintal (Indian rupees per 100 kg), which converts to $63.99 in U.S. currency. That’s down from 5500.00 INR/Quintal in mid-May. No beans inflation, apparently, in India.

Michael Knisley writes about managing your personal finances for InCharge Debt Solutions. He was an assistant professor on the faculty at the prestigious University of Missouri School of Journalism and has more than 40 years of experience editing and writing about business, sports and the spectrum of issues affecting consumers and fans. During his career, Michael has won awards from the New York Press Club, the Online News Association, the Military Reporters and Editors Association, the Associated Press Sports Editors and the Sports Emmys.

Sources:

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  3. N.A.(2022, June 10) Consumer Price Index Summary. U.S. Bureau of Labor Statistics. Retrieved from https://www.bls.gov/news.release/cpi.nr0.htm
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