Inflation is an insidious force that can have a damaging impact on your personal finances. Even though it is a gradual process, inflation eats away at the value of your money over time. If you don’t plan ahead and keep a close eye on your expenses, inflation can have a devastating impact on your household’s finances.
Inflation is a progressive increase in prices of goods and services in an economy. The general level of inflation can vary from country to country, but the effects of inflation are always the same. An increase in the cost of living combined with a stagnant or declining economy means that your money will not last as long as it once did.
Usually a country being impacted by inflation would seek to implement monetary policies such as increasing interest rates to deter people from buying and encourage people to save. This usually leads to a drop in price of goods and services, thereby reducing inflation.
It’s important to understand the financial implications of inflation on your household budget and plan accordingly. This article looks at ways you can manage the impact of inflation on your household.
Reduce baseline costs
The best way to manage the impact of inflation on your household is to reduce your spending to begin with. This will help you keep your baseline costs down and free up money to put toward the things that matter.
For a start, human beings need food and water to survive but you can still reduce cost by buying cheaper grocery brands. Grocery shops usually sell their own branded products at a lower cost when compared to high end brands.
Another area you can reduce cost is by cancelling your subscription to streaming services such as Spotify, Netflix, Disney Plus etc. Unlike food, you can definitely survive without watching Netflix.
If you work five days from the office, you can save cost by adopting hybrid working. You could work some days at home and some days in the office. On the days you work from home, you could save money that would have been otherwise spent on transportation and lunch. That’s if you are someone who doesn’t like making their own pack lunch for work.
Depending on your circumstances there could be multiple ways of reducing your baseline cost. Just remember to prioritise things that are essential to your survival rather than pleasure.
Spend wisely, be prudent and track what you spend.
When the cost of living increases, spending wisely could save you money. This means you will have to make sacrifices, especially if you’re used to living a certain lifestyle. For example, if you have a family car that you’ve always taken to the beach, try carpooling or biking to the beach this summer. Or, if you’re used to eating out, cook at home more often if it saves you money.
Don’t forget to plan your future expenses. This will help you avoid impulse buying and maintain affordability of priority bills.
Lastly, keep your budget at your fingertips. Meaning you should track what you spend. You can use any spreadsheet program or budgeting app to track your spending. This will make it easier to see where your money is going and how much extra you are paying for goods and services due to inflation.
Diversify Your Income
If you make your living from a single source of income, you need to be especially careful. Even if you’re making a good amount, it’s easy to become complacent. This can have a harmful effect on your finances, as rising inflation can make it tougher to earn the same amount.
The best solution? Diversify your income. This will reduce your reliance on a single source of income and give you a little more wiggle room if things go wrong. It also means you need to find multiple sources of income which is not easy to do. So this option is not for everyone.
To diversify your income you could explore trading in financial instruments, but there is no guarantee you will get back your initial investment. You could also explore joining an affiliate program if you have a blog or alot of social media followers. There are a lot of options to generate a passive income. You just have to find the right one.
Know when to ask for help
If you find that you’re struggling to make ends meet, it might be a good idea to speak with a financial advisor. This isn’t something to be ashamed of. In fact, it’s perfectly normal to feel disappointed, especially when you have a family to fend for. Don’t let it weigh you down or stop you from asking for help.
There are a variety of resources that can help you out, such as food banks, free and low-cost government programs, and credit unions that loan money to low-income individuals. You can also ask your family for help or a close friend.
That said, we appreciate asking for help may not be an option for everyone and we hope you find something that works for you. There are also government websites which provide advice for people struggling with their bills. If you live in the UK you can visit the Citizens Advice website for resources. If you are in the US visit usa.gov, or Canada.ca for those living in Canada.
Lastly, don’t compound your problems by securing payday loans. They might solve your problems short term but their interest rates will comeback to haunt you if you don’t pay the loan back in time.
Keep an eye on the big picture
It’s easy to get bogged down in the daily cost of living. You have to take care of the little things, like paying your bills and putting food on the table. However, it’s also important to keep an eye on the big picture. This will help you identify areas of excess and impending inflation. If you see that your salary isn’t keeping pace with inflation, it’s an early indicator that things are getting out of control.
When you’re sitting down to put together your budget, don’t just look at the $ value of things. Ask yourself what you really need to survive and function? What is the bare minimum? What is the absolute maximum that you’re willing to spend on certain things? Basically, apply the law of acceptable loss when building your budget. This means, anything you can survive without should be on your list for items which can be left out of your budget to reduce your baseline cost. It’s all about seeing the bigger picture, and that is survival over comfort.
Conclusion
It’s easy to get bogged down in the daily cost of living. You have to take care of the little things, like paying your bills and putting food on the table. However, it’s also important to keep an eye on the big picture. This will help you identify areas of excess and impending inflation. If you see that your salary isn’t keeping pace with inflation, it’s an early indicator that things are getting out of control.
When you’re sitting down to put together your budget, don’t just look at the $ value of things. Ask yourself what you really need to survive and function? What is the bare minimum? What is the absolute maximum that you’re willing to spend on certain things? Basically, apply the law of acceptable loss when building your budget. This means, anything you can survive without should be on your list for items which can be left out of your budget to reduce your baseline cost. It’s all about seeing the bigger picture, and that is a combination of survival and affordability.
This article was originally published in Issue 12 of The Business Anecdote Magazine.
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