How To Budget During Inflation – Forbes Advisor

How To Budget During Inflation – Forbes Advisor

August 11, 2022 Off By administrator

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Inflation—or an extended period of rising prices—can take a real bite out of your budget. This year has seen inflation rising rapidly, with the government’s consumer price index showing food prices soared 10.9% over the year that ended in July. That was the biggest 12-month increase since 1979.

Higher prices mean you may need to be more strategic about spending to stretch your income. Learning how to budget for periods of higher inflation can help you rethink the way you spend—and potentially find money to save.

How to Protect Yourself From Inflation

Periods of rising prices can be unpredictable, and there’s no way to accurately gauge how high inflation might climb or how long it will last.

You can take some steps to protect yourself from inflation’s worst impacts. You can start by looking at your short- and long-term financial plans to see what adjustments you might need to make.

Higher inflation could mean deferring a home improvement project or spending your vacation at home instead of traveling. Or it might require something more extreme, like taking on a second job or starting a side business.

Balancing saving with debt repayment can be another way to protect yourself against inflation. When prices rise, money in a savings account may not go as far, especially if you’re earning a lower rate on deposits. Likewise, you may choose to pause taking on any new debt temporarily.

Having a budget to follow can make your inflation-proofing plan work. As you work on making a budget for inflation, here are eight important things to consider.

1. Streamline Your Mortgage Costs

If you own your home, your mortgage may be one of your biggest budgeting costs. You may have an opportunity to reap savings by refinancing.

So how do you determine if refinancing makes sense? First, consider what rates you’re likely to qualify for based on your credit score and income. Then, compare that to your current interest rate. A mortgage refinance calculator can help you run the numbers.

Next, think about how long you plan to remain in the home and how much you may have to pay in closing costs for a mortgage refinance loan. If you plan to stay in the home at least long enough to reach the break-even point—meaning you recoup what you pay for closing costs in interest savings—that could make refinancing worthwhile.

If you’re not in a position to refinance your mortgage, here’s another possibility for saving: Shop around for a better deal on homeowners insurance. Finding a less expensive policy could help shrink your budget and save money.

2. Reduce Rates on Other Debts

Aside from a mortgage, you may be budgeting for debt repayment toward credit cards, student loans or other lines of credit. Paying off debt, or at least making it less expensive, can help when higher prices…

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