With the cost of goods rising, you may find that you’re not getting as much bang for your buck these days. Unfortunately, if you want to keep your finances in check and stay on track, you might need to adjust your budget.
Understanding how inflation works can help you manage your money better.
Inflation can be described as the overall increase in prices of goods and services that are consumed by most people. Some price increases are more noticeable than others, such as groceries and utilities, but other products might not share as much of an increase in price.
Inflation can be caused by a few different scenarios. One cause is demand-pull inflation. This happens when the government stimulates the economy by increasing the money supply. Money supply can also be increased through lower interest rates.
When you have a greater supply of money, your first instinct might be to buy more things, and you’re not alone. With a greater demand for the same amount of goods, comes higher prices.
The second cause of inflation is known as cost-push inflation, or stagflation. This occurs when the cost to make products increases because there is a supply shortage, so companies charge more for their products. However, even though the price of goods and cost of living are increasing through this, many people’s wages remain the same.
When you need to spend more money to live, but your income is the same, you probably need to rework your budget to keep your finances afloat.
Budgeting During Inflation
During inflation it is especially important that you give every dollar you make a purpose. Whether that be setting it aside for savings or your bills. When you’re not keeping track of all of your money, that makes it much easier to spend.
To create a budget or adjust the one you have, you should start with reviewing your spending habits. Go over everything and see what you really need and what were extra purchases. It can be helpful to add everything up so you can see exactly what you’re spending.
A coffee a day might not seem like much, but if you spend five dollars on every cup, that is $155 a month on coffee. You need to ask yourself if you can set that aside each month, or if there are ways to save money on coffee by brewing it at home or buying it less frequently.
Think about other expenses you have that might not be a necessity and add together what you’re spending on those as well. Some common categories are subscription services, eating out, fun and unnecessary purchases, etc. Although it might not be fun to switch to the free music subscription with ads, if you need to save money it’s a good place to start. What are other subscriptions you pay for that have a free version?
Next, take a look at what you really need to buy. What can’t you live without between each paycheck? Groceries, bills, rent/mortgage, cell phone, etc. After that, see what money you are putting into your savings.
Even if you have already reviewed your finances in the past, you may need to do it again to manage your money during inflation. If your grocery bill is now higher, you would have to make up for the costs from another budgeting category to stay on track.
Create a Budget
Now that you know where your money goes and you’ve added up the totals, you can start to budget accordingly. With Diamond’s Personal Savings Accounts, you can easily create new savings accounts to help you set aside money for each category.
You can create an account for literally anything that you need to budget for. These are some examples: coffee fund, groceries, utilities, bills, rent/mortgage, student loans, etc. Then at every paycheck, transfer the money you want to allocate into each account and give it a purpose.
You might even find that you still have wiggle room for the fun and unnecessary purchases, you just need to cut back. Here are some helpful tips and instructions for setting up these savings accounts.
Sticking to a new budget may seem difficult at first, but it’s just something you need to get used to so you can practice good spending and saving habits. Stay on top of your money during inflation and keep your financial goals in sight. Creating a budget can help you manage your money and help keep you out of credit card debt.
If you want more information on Diamond’s Personal Savings Accounts, visit your closest branch or speak with a Diamond Representative at 610.326.5490.