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How to Adjust Your Finances for Inflation

If more of your money seems to be disappearing faster than usual, you're probably suffering from the effects of inflation. Between November 2020 and November 2021, the Consumer Price Index (which measures the average prices of goods and services) rose 6.8%. It's the most significant year-over-year increase since 1982.

What Caused Inflation

COVID created the perfect economic storm: sudden halt in goods and services production, lowered interest rates, the influx of money through economic relief, increased demand for goods and services, and low inventory. Of course, an increase in wages plays a role, too. 

The Federal Reserve's job is to control the money supply and keep inflation in check. While they're working on a plan to slow inflation, you can start working on a financial plan now to alleviate the burdens on your wallet.

Budget or Bust

If you haven't mapped out your income versus expenses, you won't have a clear picture of where your money is going. Start with a simple list of all of your expenses, including subscriptions, routine grooming appointments, gas, groceries, pet expenses, savings, and fun money (money you spend on miscellaneous shopping, dining out, and entertainment). Some expenses are fixed, but some costs can fluctuate, such as electricity or gas. So estimate the high-end to leave enough in your budget to cover the cost.

First Florida Credit Union partners with Greenpath Financial Services to provide free resources, including a budgeting template.

Make a Grocery Plan

Although prices are now higher at the grocery store, you still have the most control over your grocery expenses because you choose the items. Planning your list will keep you on track and help you avoid impulse buys.

When you're making a list of your groceries, think about the meals you plan to make. For example, if a meal calls for fresh produce or spices, try thinking of another meal you can also make that includes some of the same ingredients, so you use more of what you buy effectively.

Since the price of goods varies, some of the items you would typically buy may be highly inflated right now. Consider switching to the generic brand, stop buying it temporarily, or purchase it every other trip instead of every time.

Suspend Subscriptions

According to the Washington Post, it's commonplace for Americans to have up to 10 subscription services.

Encountering a sudden increase in expenses on items you regularly buy may necessitate evaluating other costs to help rebalance your budget. For example, removing one to two subscription services could quickly make up for the difference in your grocery budget or increased electricity costs each month.

Refinance, Consolidate or Transfer Debts

There is no guarantee when the Federal Reserve will increase interest rates. While mortgage and auto loan rates are still low, you can quickly trim several hundred dollars off your monthly expenses with lower interest loans. Not sure if it will make enough of a difference? Simulate your payments with a financial calculator, so you know what to expect.

You can also use a financial calculator to estimate debt consolidation. If you have several debts at high-interest rates, you may find consolidating them into one loan with one rate will reduce your payments and simplify your bills.

Don't forget to evaluate your credit cards, too. Some companies will honor a rate reduction if requested and if you meet their criteria. However, if you are unable to receive a lower rate with your current credit card company, consider transferring the balance to a lower-interest-rate credit card. Credit Unions typically offer credit cards with lower interest rates than most banks and offer competitive perks.

With a few easy adjustments to your spending habits and expenses, you’ll be able to navigate the troubled waters of inflation.