Published on January 12th, 2022
If you’re struggling to make ends meet, you wouldn’t be alone. Some 45% of people polled by Gallup say inflation’s meteoric rise in 2021 has caused them financial hardship.
Unfortunately, economic forecasts say a much-needed reprieve won’t arrive until the end of 2022. That means there’s still another year of inflation raising prices on everything from gas to groceries.
What does this mean for your finances? Find out more below, including how you can batten down the hatches to weather this latest financial storm.
The Short-Term Effects of Inflation
Inflation makes the price of goods and services rise. Usually, it’s about 2 percent per year, and if you’re lucky, your wages follow a similar increase.
Striking this balance is harder now that inflation is hovering around 5 percent. If your employer doesn’t match inflation, you’ll notice more of your cash goes towards paying bills than in the past as a result.
With every purchase costing roughly 5 percent more, you may have less cash leftover to splurge or save as usual.
The Long-Term Effects of Inflation
When the essentials take up so much of your monthly income, it can be hard to keep up with your savings goals. If you’re living paycheck to paycheck, you might even stop saving altogether.
Living without regular savings is risky, as you’ll be vulnerable to unexpected expenses that you didn’t know to include in your budget. Things like urgent household repairs or medical attention could be impossible to cover on your own.
What happens then? In an emergency, you can research installment loans online. You can apply to borrow money quickly with some online direct lenders.
If you’re approved, you can receive the funds you need to take on an unexpected emergency expense. And unlike other fast cash advances, installment loans give you more time to repay what you owe.
This way, there’s less pressure on your budget to pay everything back in one lump sum like you would a payday loan.
How to Update Your Budget to Reflect Inflation?
While the experts aren’t decided on how high inflation will get, they can agree on one thing: a higher-than-normal inflation rate is here to stay for the foreseeable future.
You’ll want to tweak your budget to make sure you’re prepared for another year of increased prices. Here are some tips to keep in mind when you do.
1. Cut Discretionary Expenses
Discretionary spending represents all the cash you spend on unnecessary things like gifts, travel, and takeout. Since they aren’t tied to the essentials you need to live, they’re easier to eliminate from your budget.
Depending on your situation, you don’t have to cut all the fun stuff from your budget. But you should be mindful of how much you spend on things you don’t need. Keep the little splurges that keep you sane, and trim things that do nothing but waste money.
2. Trim the Fat on the Essentials
While your essential spending is harder to reduce, you can uncover a lot of savings if you’re crafty. One of the biggest ways to save is by moving to a cheaper neighborhood.
Relocating isn’t always a goal you can achieve today or tomorrow, but it’s a long-term goal you can keep on the backburner for long-term savings.
3. Contact Your Insurance Provider
In the meantime, you can contact insurance companies to see if cheaper packages are available. Compare what’s out there before you call these providers, so you understand what tiers of coverage your money can get you.
You may be able to snag a better rate if you bundle your home, life, and auto policies. You may also reduce your premiums by tweaking your deductibles.
4. Switch Your Cell Phone Plan
5. Meal Plan
Groceries are some of the hardest-hit goods hit by inflation. To keep your grocery bill low, shop with a plan. You can purposefully choose recipes that are tasty, nutritious, and cheap. Adding coupons and rebates to your shopping can also increase your savings.
Until inflation returns to pre-pandemic levels, you’re going to pay more for everyday items and services. Now that rising costs are a reality for your finances, make sure your budget is ready. Follow these tips until inflation’s balloon pops.