Money — especially during rising inflation — is a subject that can evoke stress every time it’s talked about.
What if it didn’t have to be that way?
Jessi Fearon, a financial adviser and owner of “Real Life on a Budget,” didn’t start out as an expert and had her own share of financial mishaps and stress. She and her husband accumulated lots of debt early on, but when she decided that she wanted to take control of her finances, her family became debt-free in 2019 after taking just 17 months to pay it all off. She said that budgeting, no matter what the economic situation, “puts you in the driver’s seat” of your future.
Even if creating or keeping true to a budget is the last thing on your mind, hear me — and, by “me,” I mean experts in the field — out.
Those experts agree that it’s still possible to reach your financial goals even during times of high prices and inflation like the United States is experiencing now.
Per CNBC, six of the 10 cities experiencing the worst of inflation are located in the Sun Belt, sweeping across the southern third of the country, right where Fearon lives. But she stays optimistic even in times of the unknown.
To reach your financial goals in times of inflation, you need to first understand the basics of a budget; second, learn how budgeting in times of inflation differs from budgeting in a normal economy; and last, use different strategies to adapt that basic budget to times of inflation.
By understanding these three things, a family is on the right track to making their money work for them.
Budgeting basics: What stays the same?
Common among the experts interviewed by the Deseret News is the idea that there is no universal right or wrong way to budget. Budgeting is more of a personalized practice that requires time and effort not only to create but to follow through.
While prices change during inflation, the basic principles of a budget still apply.
Starting from scratch can seem like an overwhelming process, but these simple steps, Fearon suggests, can help anyone who wants to begin budgeting:
- Figure out how much incoming money you have to work with each month.
- Take into account how much money is going out of your account for recurring payments, such as bills.
- Subtract the amount going out of your account from your income and find out how much is left. Take an inventory and figure out where you stand.
- Where can you cut?
Fearon takes her blog name seriously and believes that you really can live “real life on a budget” and offers a free beginners’ guide on her website.
How is budgeting different during inflation?
Yoon Lee, head of Utah State University’s family and consumer economics program, said that perhaps the most important difference for budgeting during times of inflation is that people lose “purchasing power.”
“In times of inflation, if I were to go to the grocery store with the same budget I had nine months ago, I wouldn’t be able to afford all of the things that I used to buy. I could maybe buy half of the items I used to be able to,” Lee explained. “Inflation causes me to lose purchasing power; $100 becomes $75.”
During inflation, not only are prices going up, but they’re going up at a rate that can be difficult to predict for experts, let alone the average budgeter.
At the Federal Reserve Bank of Richmond, covering Richmond, Baltimore and Charlotte (the Baltimore area is No. 6 on the list of most affected cities), economist Paul Ho described inflation as a “volatile process” which makes “it hard to figure out why inflation is evolving the way it is and predict its future path.” That means it’s hard for anyone to plan for.
Every budget — old or new — will need to be adjusted monthly, if not multiple times a month, to account for unpredictable inflation, Ashley LeBaron-Black, an assistant professor of Brigham Young University’s family life department, told the Deseret News.
She said that ideally, the budget plan should be evaluated at least twice a month — once in the middle and once at the end — in a group meeting by those in charge of the budget.
“Budgeting can be seen as optional but is still a good idea for everyone,” said LeBaron-Black. “But low-income people budget really well and are very good at making things work on very little. Some of us who have more money to work with probably aren’t as strict budgeters because we don’t have to be.”
With the economic uncertainty, some families who have never prioritized budgeting may have to in order to reach their financial goals, she said.
How can families adapt budgets to inflation?
While creating a financial plan will take time and energy, LeBaron-Black said that carrying out the plan is where most people have the hardest time.
Remember, individuals are in the driver’s seat of their own finances and have the ability to make decisions to have a healthy financial future, Fearon told the Deseret News.
Even if it seems hard, budgeting is possible.
Here are the top recommendations from Lee, LeBaron-Black and Fearon on how to keep the budget after making it:
Prioritize needs over wants
Perhaps the most repeated advice the Deseret News received from experts was the need to prioritize necessities and weed out what’s not necessary.
It’s a simple concept, but can be hard to execute because of the myth that designer brands are the only things to buy.
Lee suggests reviewing the brands that we normally buy and then deciding if the off-brand would be a worthwhile exchange. As a good rule of thumb, Lee said, “When it’s high, don’t buy.”
This also goes for eating out, said Lee. By choosing to prepare meals at home instead of eating out, families can save money when fast-food restaurants raise prices too.
Make a list
Lists can be a budgeter’s best friend.
By making a list of all the food in the house, it becomes easier to learn what you need. Use the things you already have and buy what you need.
Fearon suggests planning the top three meals that everyone in the family will eat.
Another helpful list is a grocery list. To limit spending at the grocery store, make a list of what you need. Only buy what’s on the list.
Credit cards versus cash
A good common practice for starting budgeters — and seasoned ones, too — is only using cash.
Lee said that by taking cash to the store to purchase groceries, it’s impossible to go over budget. It removes the possibility of just charging the overage to a card.
A lot of Fearon’s debt, she said, was because of poor financial habits which had a lot to do with swiping a credit card.
“When we were becoming debt-free, we had to cut off our credit cards because it was just way too easy to keep swiping,” said Fearon. “The habit was so engrained that we just kept doing it without even realizing it.”
Having a credit card does have its benefits, though, she said. They can offer great cash-back benefits and help raise credit scores. CNBC reported the top 10 credit cards for families to receive benefits such as rewards.
But Fearon cautions against habit.
“If you’re in that position of mindless credit card swiping and you are not able to pay off the balance every single month, or even if you are able to pay off the balance but you’re noticing the spending is increasing, it may be time to literally put them on ice,” Fearon said. “Give yourself a break and rein in any spending.”
Learn the marketing tactics
“You need to know and understand the marketing strategy used to entice you to buy more than what you need,” said Lee.
Fearon described this as the “shiny-object syndrome,” because coupons can look pretty good on paper. But in reality, it could turn out that they aren’t as good a deal as you originally thought. It’s common to find things cheaper by just buying a single item. It’s all about balance and understanding if the sale is actually a bargain.
Coupons, Lee said, are meant to get customers through the door and have them spend money on things they don’t necessarily need.
Before going out just to use a coupon, Lee said that it’s important to determine if that item is necessary and in the budget.
Don’t take kids to the store
While kids make budgeting for families a whole lot more complicated compared to individuals, they don’t have to be the reason parents don’t stick to the budget.
The thing about kids is that they often don’t understand when a parent tells them, “That sucker isn’t in the budget; we can’t get it.”
Not taking kids to the grocery store removes the temptation to buy them something that they might want and is not accounted for in the budget.
Budgeting will help to reduce stress on the whole family and create an atmosphere where money doesn’t control the household.
It may take some time to get the hang of it, but budgeting can help families achieve their financial goals and is possible in hard times.
“It is hard managing money and it’s really hard when you feel completely out of control, especially with things like inflation,” Fearon said. “It can be disheartening, but the important thing to remember is that you do have some control. You can look at your money and make those hard decisions. You have the ability to do it.”
“Budgeting is less like a jail and more like a tool. No financial problems go away without it,” LeBaron-Black said.