Strategies for Adjusting Your Budget in the Face of Inflation

The escalating inflation in the United States seems to be intensifying and there are indications that it may persist for an extended period.

Revising the family budget is a good idea for many people.

In January, the Consumer Price Index increased by 7.5% year-over-year, marking the highest inflation rate since February 1982, as announced by the U.S. Department of Labor.

The index showed that nearly all categories experienced growth month over month, and all were higher than the previous year. Energy costs, food prices, and used cars and trucks had some of the most significant increases.

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According to Greg Giardino, a certified financial planner and advisor at J.M. Franklin & Company in Tarrytown, New York, it is crucial to reassess your budget and spending plan to avoid developing unhealthy financial habits in the long run.

Financial experts advise Americans to prioritize certain aspects while revising their budgets.

Review prices

Americans' budgets, which have been effective for the past year and a half, may no longer suffice due to rising prices, according to Christopher Owens, CFP, a senior advisor associate at Wealthspire Advisors in Potomac, Maryland.

Since inflation affects consumer prices differently, individuals must adjust their budgets based on their spending. For instance, if you don't plan to purchase a used car or truck in the near future, you won't be affected by the 40% increase in prices.

You may also be impacted by rising costs, including increased food prices at home and in restaurants, as well as energy expenses. Examine your spending in these areas and adjust your budget accordingly.

As Owens stated, it is crucial for future travelers to budget their trips, which has become increasingly complex.

He said, "It's crucial to take that additional step; how much will it cost to dine out?"

To combat inflation's impact on prices, Owens advises consumers to closely monitor their spending in categories with rising costs, particularly if they frequently travel.

It's likely to be more volatile in general," he said. "It would be really good to keep your eye on your spending, probably every quarter, just as general household maintenance.

Tania Brown, an Atlanta-based CFP and founder of FinanciallyConfidentMom.com, stated that if you've been overspending due to inflation, you may need to make some cuts.

One way to save money is by cutting out things that aren't important to you, such as certain subscription services, said Brown.

Set a new normal

Since the pandemic began, Americans have had to adapt to numerous changes, including remote work and new guidelines.

With the pandemic ongoing, it's crucial to reevaluate priorities and focus on what truly matters, especially as inflation reduces buying power.

Tess Zigo, a financial advisor at Emerge Wealth Strategies in Lisle, Illinois, asked, "What do you envision as the new normal for you?"

To determine if their spending aligns with their financial values, Zigo advises individuals to sit down and reflect on their top financial priorities and where they want their money to go.

It is essential to reassess a budget as expenses and incomes have changed for many people in the past year.

Giardino at J.M. Franklin & Company advised that even those who were more severely affected by the pandemic should perform a budgeting exercise. He suggested beginning with your after-tax income and assigning 50% to necessities and utilities, 30% to entertainment and travel, and 20% to savings, if feasible.

He advised that individuals should budget using the method that works best for them, whether it's through cash, spending tracking apps, or a credit card.

Boost savings

Experts suggest setting aside funds for savings within your budget.

A recent survey revealed that 56% of Americans struggle to cover a $1,000 emergency expense with their savings.

If you're reviewing your budget, consider setting aside a small amount each month to start building an emergency fund. Even $5 a month can help you develop better financial habits in the future.

"After securing a safety net, you deserve to either invest more or reduce your debt," stated Giardino.

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