How to budget when inflation is costing households nearly $300 more a month
A customer packs fruit at a supermarket in Chevy Chase, Maryland, Feb. 7, 2022.
Mandel Ngan | AFP | Getty Images
Inflation costs the average American household an additional $296 a month, according to an analysis by Moody’s Analytics.
The figure is based on the latest reading of consumer prices, which rose 7.5% in January from a year ago, according to the US Department of Labor.
“Things are going to get worse before they get better,” said Ryan Sweet, senior economist at Moody’s Analytics, which led the analysis.
Although pain is felt at all levels, some feel it more than others.
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Low- and middle-income U.S. households spent about 7% more in 2021 on the same products they purchased in 2020 or 2019, according to analysis by the Penn Wharton Budget Model. In comparison, spending by well-to-do households increased by 6%.
A separate Wells Fargo study showed that the middle class, in particular, is squeezed. Inflation was half a point higher for middle-income consumers than for consumers at the top and bottom of the spectrum in December, Wells Fargo economists found. When broken down by race and ethnicity, Hispanics and Latinos saw the largest increase in the cost of living.
“Fear of inflation, the pandemic and war are challenging what future generations see as the American dream,” said money expert Sahirenys Pierce, founder of personal finance blog Poised Finance Lifestyle.
Here are three ways to try to fight inflation – and two things not to do.
1. Plan ahead
To save on gas, be strategic about how you use your car. If you must run errands, do them in one trip and at a time when there’s not much traffic, suggests Misty Lynch, certified financial planner at Sound View Financial Advisors, based in Walpole, Mass.
When you go shopping, have a meal plan for the week already in place.
“It helps people save money if they know what they’re going to eat and stick to it,” Lynch said.
Pierce likes apps like Flipp to find grocery store ads. She creates a meal plan for the week that incorporates sale items and cooks three of those meals on Sunday. Having a plan in place for the remaining days of the week helps her avoid takeout or fast food.
“This strategy has helped my family save hundreds of dollars during our debt-free journey, the pandemic, and now during times of high inflation,” Pierce said.
2. Shop wisely
If you don’t need a specific brand name item, you can save money at a discount grocery store. Buying items in bulk from a warehouse store, like Costco or BJ’s, can help you avoid future price hikes.
To make comparisons, look at the unit price of a product, which is basically the unit cost of a particular product. For example, canned products may be charged by the ounce and paper products may be charged by the sheet or by the foot. So even though a product may seem cheaper at first glance, it may not be the best deal because it contains fewer units than a more expensive item.
Use coupons in-store and online. You can get them through a retailer’s rewards program or a credit card. Meanwhile, browser extensions like Rakuten and Honey automatically look for discount codes and apply them at checkout when shopping online.
3. Check your budget weekly
Since prices rise so frequently, it’s a good idea to review and re-evaluate your budget weekly, Pierce said.
“You want to know where all your money is going and give you the flexibility to cut another area of your budget to make the numbers work,” she said.
One way to cut your costs is to remove things you don’t need, like subscription services. You can also try negotiating to lower bills like your cable bill or car insurance, Lynch suggested.
Save energy by unplugging appliances when not in use or using power strips with switches that allow you to completely turn off products plugged into them. By doing so, you could save 5 to 10 percent of your residential energy consumption, according to the Department of Energy. Turning down the heat can also help save money.
4. Beware of credit card debt
It might be tempting to weather the storm by racking up credit card debt. Don’t, said Dawit Kebede, senior economist at the Credit Union National Association.
Credit card interest rates are already high, averaging just over 16%, according to CreditCards.com. They are expected to rise as the Federal Reserve raises interest rates this year to help contain inflation.