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Budgeting Tips to Stay Ahead of Inflation

By: American Heritage08.04.22

If you did a double-take the last time you checked out at the store or paid at the pump, you’re not alone. Right now, inflation is in overdrive, and people are feeling the pinch in their wallets. Inflation may be out of your control, but you can act to take the sting out of rising prices.

But first, let’s look at a few basics.


What Inflation Looks Like

In 1989, you could buy a gallon of gas for about dollar. Now? Not so much.

But inflation doesn’t just affect one product or service. Inflation is an overall trend in which prices rise throughout the economy. Sure, in recent months, certain expenses climbed especially fast, like buying a car, fueling it up, or booking a vacation. But to one degree or another, prices have risen across the board.


How Inflation Happens

Say your local bakery serves the tastiest jelly donuts. If everybody wants them, sheer demand could drive up their price. Too many dollars are chasing too few donuts. Economists call this “demand-pull” inflation.

On the other hand, if the bakery faces rising costs of flour and sugar or other expenses that come with producing its goods, it may pass along the extra costs to customers by raising its prices. That’s called “cost-push” inflation.

Either way, you pay more for your donuts – as well as plenty of other things as inflation plays out across our economy.

In the past, inflation happened so gradually that you may not have noticed. Not now, though. Costs have steadily risen for many reasons, like pent-up consumer spending and economic stimulus programs during the COVID lockdowns of 2020, labor shortages, and rising energy and supply chain costs.

Now, with year-over-year inflation soaring to more than 9% in June, it’s a good idea to watch your spending. After all, when prices go up, your dollars don’t go as far as they used to. If you’re not getting regular cost-of-living raises at your job, carefully following a budget is an important way to make sure your current income covers all your needs.


Look at Your Budget

This is the best way to beat inflation. A budget is a spending plan to make sure you’re divvying up your money appropriately. Without a budget, some people struggle to save, fall behind on bills, or accrue costly credit card debt.

One popular budgeting method is the 50/30/20 budget. With this approach, you commit:

  • 50% of your after-tax income to things you need (like housing and food)
  • 30% to wants (like that fabulous purse you saw online)
  • 20% to savings or paying off debt

Inflated expenses can knock these budget categories out of whack. Maybe essentials are eating up more than 50% of your budget, or you’re no longer able to put as much money into savings each month.  


Take Stock of Your Expenses

To budget for inflation, look at how much you’re spending now by reviewing your banking and credit card statements. Print out a budget worksheet or use an online tool like My Money Manager to figure out your spending in different budget categories. Here’s an example:


Expense Monthly Spending
Rent $1,100
Groceries $500
Dining Out $200
TV Streaming Services $50


Adjust for Inflation

Even if your budget categories worked together nicely a year ago, you may need to tweak them now, especially for essentials like housing and food.

Some budget items are nonnegotiable. If the landlord ups your rent from $1,100 to $1,200, you’ll need to budget more for this expense and whittle down spending elsewhere. Here are some budgeting tips that can help you make room in your finances:

  • Cook more, dine out less. Trimming your spending in this nonessential category is a good way to free up money each month.
  • Cut down your grocery bills. Buy generic instead of name-brand items. Be diligent about meal planning – cooking recipes from scratch instead of buying pricey prepackaged meals – and freeze your leftovers. Also, stock up on cheaper items at your wholesale club.
  • Save on gas. If you drive a lot, compare gas prices with an app like GasBuddy or look for a gas rewards card. The best (and greenest) option is to rely on your car less. For example, try combining all your weekly errands into one trip.
  • Scale back subscriptions. Cut your cable or cancel some TV streaming services or other monthly memberships.
  • Put off purchases until later. Wait for that fabulous purse to go on sale.

Be sure to review your spending and budgeting strategies over time and adjust as needed. It’s an ongoing process.


Help Protect Your Savings

That twenty in your wallet? It’s not safe from inflation. Since rising costs equal less spending power for each dollar, a $20 bill will be worth less in the future. Keeping your money growing helps protect the value of your savings, so make sure you’re earning a solid rate of return by keeping your money in a competitive account.  

Check out American Heritage’s Certificates and High-Yield Savings Account. With these and our other savings options, you have a secure, convenient way to keep building your savings, no matter what the economy does.   



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