A mother and daughter check their grocery list to stay on budget during inflation.

How to Budget During Inflation


Here’s how to set a budget, cut spending, and stretch your income during inflation.

With inflation running at a 40-year high and the Federal Reserve likely to continue hiking short-term interest rates until price increases are slowed, consumers have less purchasing power than they had before. Rising prices for necessities such as rent, food, and gasoline have already put a dent in many personal budgets.

In addition, higher interest rates mean you will probably pay more to borrow money; expect to see interest costs rise on your credit cards, car loan, adjustable-rate mortgage, and home equity lines of credit.

Finding ways to stretch your income is critical during periods of high inflation to avoid getting into debt or having to dip into savings to make ends meet. Here are a few money management tips to help you keep track of your spending so that inflation doesn’t upend your financial goals.

Decide Where You Can Cut Back

The first step to control your spending is to create a budget to accurately track where your money is going each month. Fifth Third Bank’s Spending Calculator can show you how much of your income goes to essential expenses, such as rent, child care, and car payments, and how much you are spending on discretionary items, such as dining out, travel, and entertainment.

Although you may not be able to cut back on your fixed expenses in the short term, there are plenty of ways to adjust your discretionary spending. Fifth Third’s Budget Savings Calculator can tally the amount you’d save by taking cost-cutting steps such as postponing a new car purchase, eating out less, and buying fewer clothes.

Next, you need to decide where to reduce your expenses. Here are some budgeting tips that can help you to cut your spending:

  • Cancel subscriptions to streaming services and cable TV channels you no longer frequently watch.
  • At the grocery store, skip higher priced brands in favor of private-label brands, which are often produced by the same manufacturer. Plan your meals for the week ahead and bring a list—one trip to the store saves on gas and avoids overspending on costlier convenience foods. Use an app such as Ibotta to earn cash back at grocery stores and other retailers. If you use a credit card each month for shopping, ensure that the card rewards you.
  • Use a programmable thermostat to target the right amount of air conditioning and heat when you are in the house and save energy when you are away. Unplug appliances when they are not in use to save electricity costs.
  • Curb impulse buying by setting a waiting period, say 24 hours or more, between the time you decide to buy something and when you actually pay for it. Often the perspective of a little time can keep you from buying things you really don’t need.
  • Talk to your insurance agent about lowering your car insurance premiums by raising your deductibles or taking advantage of discounts for low mileage, safe driving, and good credit scores. Or it may be time to switch to an auto insurance company that offers a less expensive policy.

Consolidate Debts

Another way to stretch your money during a period of high inflation is to reduce the interest payments you’re paying on debt.

Consider consolidating your credit card debt onto a balance-transfer credit card, which will give you a year or more at an introductory 0% annual percentage rate (APR) on the amount of debt you transfer after paying a nominal transfer fee. This will give you time to pay off debt without the interest charges—which potentially will continue to rise—and improve your credit score in the process.

If you have a good credit record, you may be eligible to consolidate your credit card debt with a Fifth Third personal loan. A debt consolidation loan has a fixed interest rate, which will be much lower than a credit card annual percentage rate, as well as a monthly payment schedule until you pay off your debt.

Keep Saving for Retirement

The current level of inflation may be temporary, but it is inevitable that there will be a decline in the purchasing power of today’s dollars. Saving for the future with a diversified portfolio of stocks and bonds, such as in a 401(k) or IRA, has the potential to deliver returns that will outpace inflation. Two investments that specifically combat high inflation are Treasury Inflation-Protected Securities (TIPS) and I-Bonds, which pay interest that adjusts for inflation rates.

Have Cash at the Ready

Aim to build an emergency fund that is able to meet at least three months of your living expenses. Make saving easy by using a mobile app that automatically transfers money from a Fifth Third checking account to your Fifth Third Momentum® Savings Account. One silver lining to the rising interest rates during this period of high inflation is that you may potentially earn higher yields from your savings account.

Having sufficient savings is a critical strategy to deal with today’s higher prices. Should you need a new computer, refrigerator, or car, you don’t want to sacrifice quality or go into debt to make an essential big-ticket purchase.

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