7 Steps to Inflation-Proof Your Budget

Rising prices on everything from groceries to gas can put a real dent in your budget and add stress to your daily life. Use this advice to counter the effects.

Written by Elaine King CFP® / January 26, 2022

Quick Bites

  • You may have hidden money—in savings on your monthly bills for services like your cell phone or Internet connection. Check your bills to see where you can save.
  • Assign a fixed amount for variable expenses like clothing, and don’t go over it.
  • People who track their budgets are often the ones who get ahead with their finances.
  • There are things you can do today to deal with inflation, but planning ahead is key for weathering unexpected ups and downs.

Every time I go out shopping the total amount I spend for the same goods just seems to keep going up and the quantity keeps going down. At my favorite restaurant I ordered the same appetizer and entree, and the bill was 20% more—welcome to inflation at 7%. 

This is the reality we have been living in for a while; it reminds me of living in Peru as a child with 7,481.66% in the ’90s. 

So what can you do about inflation right now? Look forward and protect your budget against rising inflation. Here are the seven things you can do today to improve your budget during inflation.

Inside this article

  1. Grow your income
  2. Review money going out
  3. Mitigate overspending
  4. Fast-forward your savings
  5. Lessen debt
  6. Learn a new skill
  7. Look ahead

Step 1: Grow your income

I state the obvious, but as the saying goes, “misery loves company,” and if you spend your valuable time complaining to your friends or lamenting to your mother, there is a high probability you will find a good choir to make you feel emotionally better, but that will not increase your income.  

Instead, spend your time starting a side business with a friend, applying for a better-paying job or asking your boss what it will take to get you to the next pay grade. Asking for more work to increase your inflow is a healthy exercise that will create the necessary energy your brain needs to grow your income. Aim to up it at least 5% to 7%.

Step 2: Review the money going out

I know it may sound petty to make a budget, but the reality is that those with a budget turn out to get ahead in their financial life because a budget gives you discipline, organization and control of your money. To become a budget pro, you will need a tracker template (it can be an app like Mint Microsoft Excel or Google Sheets or a tool offered by your own bank). The best tool is one that adapts to you and motivates you to use it weekly or monthly.

Next, ensure your fixed and “need” expenses are as lean as possible, and that they do not represent more than 60% of your income. Review every single bill and evaluate alternatives like cell phone companies, cable, internet and subscription services. And be careful about purchasing anything that has gone up a lot in price, like meat, the price for which has risen 12.5%. It may be time to consider growing some herbs or vegetables at home, if you can.

Step 3: Mitigate your risk of overspending

In my experience working with thousands of families, the risk of overspending does not lie in the fixed expenses as much as the variable expenses. These are expenses that you do not need to spend to survive. They are fun things to have and do, but tend to overflow your credit card at the end of the month. 

Unlike a cell phone bill that may always be $100 or the internet bill at $50, these variables fluctuate, and it makes it impossible to project your finances for growth unless … you also give these variables a fixed number.  

For me it helps to project the amount of money I will spend on clothes (which by the way went up 8%) every quarter and set a specific number. I see it as an allowance and once I hit the number I stop until the next quarter.

Step 4: Fast-forward your savings

A long time ago, I was told by a group of managers after a conference I gave about budgeting that they could not save because they did not have any money left at the end of the month. Similarly to time, money is a commodity that if it’s not planned it just gets wasted and there is never going to be enough.

My recommendation for this challenge is to tell you that saving is not a number, it is a habit and one that everyone no matter their income can accomplish. You can start with $1 or 10% of your income at first; the important thing is that it happens every month and that you have the commitment to separate it from your daily bills. 

Since we are talking about budgeting here, make sure you have a category for savings the same way you have a category for your cell phone bill every month. And if you are saving for a car, wait another year: They increased 37.3% in price.

Step 5: Lessen debt

In your budget you will probably also see an amount going out to your credit cards. If you have outstanding balances, pay them as soon as you can, since it is expected that the Federal Reserve will increase rates four to five times in 2022, so your interest rate on your credit card bills will also increase.

If you have a variable rate on your mortgage or car loan, make sure you fix it with your bank or lender before the rates go up. Your debt should not be more than 30% to 35% of your total expenses and that includes the total fixed amount. 

One idea that can help your budget is to assign a credit card for fixed expenses only. Call the company to ensure your due date matches the date your other bills are due to avoid late payments, and add an alert once you go over a certain amount. Mine is set at $1,000 a month. 

Step 6: Laugh and learn a new skill

I know—it’s easier said than done. But do think about this. Take a course to make your working hours more valuable, and increase your chances of earning more money. For example, if you are a designer, make sure you have the latest updates; if you are a manager, make sure you know the latest CRM. Laughing brings up positive energy and it will motivate you to keep learning. Add a budget item for learning and improvement—consider making it 5% to 10% of your expenses.

Step 7: Look ahead

Choose long-term over short-term changes in your finances. Habits are more important than quantity. Focus on quality and long-term goals to protect your budget against not only inflation but also rain, thunder and, yes, another pandemic.

About the Author

Elaine King

Elaine King CFP®

Elaine has served as the Family’s Financial Planner for over 1,200 families and 100 multigenerational family enterprises crafting actionable family financial plans.

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