Is Your Budget Due an Overhaul?

Has your lifestyle changed in the last two years? Have you run up higher balances on credit cards? You wouldn’t be alone.

Inflation reared its ugly head two years ago, causing many to dip into savings or slide into debt— both of which are unsustainable. What’s the answer? Maybe it’s time for a budget overhaul.

There’s something to understand about the inflation numbers you hear in the news, such as, “Inflation fell to 3.2% last month on an annualized basis.” Some folks think that means prices went down, but it really only means that the rate of price increases has gone down.

If prices increased 3.2% for the period, you must also understand that they will stay that way, month after month, even if the rate of inflation continues to fall. You rarely, if ever, see prices ratchet backwards. In a nutshell, it means that if inflation were suddenly 0%, the harsh effects of the last two years would still be with us.

Coupled with that disturbing trend is that wages have not kept pace with inflation. According to Bankrate, 60% of workers say their paychecks have fallen behind inflation over the past 12 months. That’s up from 55% who said they were losing ground to inflation last year. If prices continue to rise and your paycheck doesn’t keep pace, what do you do? It seems some people have been tapping into their savings to make up the difference. Some 40% of Americans have depleted savings they built up during the pandemic. Others decided to use their credit cards. The Federal Reserve reports that credit card debt rose sharply in 2023, despite soaring interest rates. Credit card balances increased nearly $50 billion in 2023 alone, to reach an all time high of just over $1 trillion. Savings will run out, credit cards will be maxed out, so if you can’t increase your income, you have to scale back your lifestyle. That means trimming your budget, or maybe giving it a complete overhaul. Some things that would have the biggest impact on your budget take a lot of time to implement, such as downsizing to a smaller house or getting rid of a car payment. For now, we’ll just look at a few things that you can do right away. First, freeze your impulse spending and you do that by freezing your credit cards. That doesn’t mean freezing your credit with the three credit bureaus, although that is another good idea. It means actually freezing your credit card or cards in a big chunk of ice in the freezer. That way you won’t carry them around and be tempted to use them. “Ah, but what about online impulse spending?” you ask. A fair question. Your online accounts probably save your credit card information, so you’ll have to login in and delete them from your accounts. That way you’ll have to thaw the cards out of the ice before you can use them online. Maybe the urge to spend will be gone by the time the ice melts. All of that may sound silly, but it works, and we know that because studies show you save from 10% to 30% by using cash only. Just take out a budgeted amount of cash for various spending categories to get you through the week. Leave your debit card at home. When the money’s gone, you have to stop spending. Next, double** up on meal prep. When you’re preparing a meal, double or even triple the recipe and put the extra meals in the freezer. Now you’re asking, “That’s nice, but how does it save money?” Here’s how:

The next time you’ve had a rough day, you’re on the way home and you feel too tired to make a meal. You want to hit the drive thru to get fast food. For a family of four, that could be $50. But wait— you don’t have to stop, because those frozen dinners are waiting for you in the freezer (maybe next to your frozen credit cards). Just pop a meal in the micro and save some serious cash.

Okay, here’s one more way to fight inflation and get your budget back in the black: have your spouse or a friend cut your hair. You can start watching Youtube videos showing how to do it. There are plenty of them. Buy the necessary equipment, such as barber’s scissors and combs— maybe even an electric razor. It’s worth the expense and it will pay for itself soon enough.

Many shops are now charging close to $20 for a haircut. If you cut your own hair, you can save almost $250 a year.

Here’s one more trick that can help you slay the inflation dragon: lower the temperature in your water heater. Most are set to around 140 degrees fahrenheit, but they only need to be at 120 degrees. Your water heater accounts for 20% of your monthly electricity cost, and lowering it to 120 degrees could cut 10% from your electric bill— every month. That will quickly add up. There are some ways you can cut back on spending today to counteract inflation. Let us know how it works out! You can also listen to the related podcast on this topic.