5 Ways To Manage Personal Finances For Inflation

5 Ways To Manage Personal Finances For Inflation

Personal finances for inflation is one of the most important facts in your financial freedom journey, you should not avoid it. Every year inflation is eating away at your money. Every year CPI inflation report shows that the price for goods and services has increased 7.9% from the same time last year, the highest inflation rate after pandemic years. Pandemic hits the lowest to upper in every field of economics, the impact may be unbearable for the middle and lower-middle class. 

Every Indian household is feeling the strain of rising prices on their finances and managing this high inflation is much more difficult than ever. The majority of households, who have only one income source are either very concerned or somewhat concerned about rising gas, Oil, food prices, inflation and grocery bill increases. And Managing these personal finances for inflation is more difficult than ever now. 

With the Russian and Ukraine wars compounding ongoing Covid-19 supply chain disruptions, experts warn inflation is here to stay for the foreseeable future—making now a good opportunity for consumers to review their overall personal finances for inflation.

How to Review Your personal finances for inflation

If you’re finding your money distributed thin these days to managing household only, you’re not alone. Forty per cent of adults say their families are worse off financially now than previous to the pandemic, according to a recent survey conducted at the national and international levels.

If your spending allowance isn’t lasting as long as it is utilised to, or you’re starting to feel nervous about your investment portfolio, take these five steps to review—and adjust—your personal finances for inflation.

1. Know Where You Stand

Before you start rebuilding your personal finances for inflation, you’ll want to know where you personally stand with inflation; calculating your personal inflation rate can assist you to do this.

A personal inflation rate is more precise than the national inflation rate routinely cited in headlines. If you’re somebody who doesn’t consume a lot of meat, for example, then you’ve managed to avoid purchasing by-products with some of the highest price increases to date. If you routinely eat takeout or eat at restaurants, you’re paying more for each order than you did a year ago.

To estimate your personal inflation rate, subtract your monthly spending from a year ago from your current monthly spending. Then, divide the amount that difference by your monthly spending from a year ago. For instance, if your current monthly spending is $2,500, and was $2,100 a year ago, divide the $400 by $ 2100,  your personal inflation rate is 19%.

Your personal inflation rate will help you contextualize why it senses like your money isn’t stretching as far as it used to—and can motivate you to cut out any excessive spending or fees in your budget.

2. Get Smart with Budgeting

Once you understand your spending and your personal inflation rate, it’s time to get back to budgeting basics to manage personal finances for inflation. 

A budget is what forms a solid foundation in anyone’s financial plan. Precise if you don’t follow your budget down to every single dollar, knowing what money comes in—and goes out—each month will allow you to identify opportunities to stretch your income also.

Budgeting for inflation needs going through your budget with a fine-toothed comb and looking at each area from a savings perspective. Look at your debt repayment classification: Are there any opportunities to save money on interest payments, either by consolidating credit card debt into a 0% balance transfer or a personal loan with a lower fixed interest rate?

For instance, transferring a $4,500 credit card balance with a 14% interest rate to a 0% balance transfer card with a 2% balance transfer cost can save you nearly $1,000 total (assuming you pay off your balance within the 12-month preliminary rate period). Most 0% interest balance transfer cards are normally only suggested for consumers with very good or excellent credit, so this strategy won’t apply to everyone.

If you’re an avid or active credit card user, you can easily lose control of your personal budget while swiping your card for day-to-day purchases, particularly if you don’t pay close attention to increases in costs over time. Studies show that it’s more effortless to overspend with credit cards, since it destroys the physical process of handing over cash, making it challenging for consumers to truly understand how much they’re spending.

Also Read: 5 personal finance thumb rules for better financial planning

It’s feasible to keep your budget while using credit cards, though. For instance, you can create a monthly spending limit and set up notifications that update you when you’re close to that set limit. You can also accumulate any rewards or cash-back earnings to redeem during a month when unexpected costs arise, so you don’t have to sink into your emergency fund to cover the tab.

3. Cut Unnecessary Fees

Inflation is already taking a chunk out of your income; don’t let various fees bite into it, too.

Almost all financial outcomes charge fees, from credit cards to bank accounts to prepaid debit cards. While some are unavoidable, you can stop some fees from your spending.

Credit cards, for instance, can come with a flurry of fees, including late fees, returned payment fees and over-limit fees. Avoid these by paying awareness to the fine print in your user agreement, how much you’re spending on your card and when your bill is due.

Annual fees on credit cards are also another story. In some cases, expensive annual fees on rewards cards can effectively“pay for themselves” if you take benefit of all of the card’s perks, like spending a considerable amount of time in airport lounges.

But if you’re somebody who travels maybe once a year, that travel rewards card with a hefty fee might not be worth paying for, and you should consider cancelling it. Keep in mind that closing credit accounts can temporarily tingle your credit scores.

But you could still fall victim to fees if you mainly use a debit card tied to your checking account. The average overdraft fee is Rs 100-250, according to RBI guided rules (Depending on banks it varies), and some banks charge more than Rs 500 per annum just to maintain the account. If your checking bank account is continuously charging you high fees, assume switching to an online bank or credit union; both tend to charge fewer fees. In 2022, there are many neo banks that are getting popular in India and they charge fee maintenance fees along with zero balance maintenance like Jupiter and NiyoX. 

Open Your Jupiter Bank Account Here

Open Your NiyoX Bank Account Click Here

Some banks will actually charge monthly minimum balance fees on checking accounts, meaning if you don’t maintain a minimum amount of money in the account, you’ll be charged. This can be especially painful if you’re living paycheck to paycheck. This list of no-fee checking accounts includes multiple opportunities without monthly balance requirements.

4. Stay the Course With Investments

As the rate of inflation increases day by day in an effort to manage households, also new investors are getting shaky. You might be drawn to tinker with your investment portfolio during the volatility—but you shouldn’t. The all-around rule of investing still applies: Stick to your long-term plan.

You likely want to stay invested in stocks during these unsteady times, especially in your retirement accounts. While many personal loans are an option if you need immediate funds, taking a loan out now means you’ll overlook compounding interest for the future, and it is not the best option to manage personal finances for inflation. 

These loans also come with great risks. If you quit your job, you’ll be on the turn to repay the loan by Tax Day, or it’ll be assessed as an early withdrawal subject to taxes and a penalty.

5. Keep Up With Your Savings

Times of high inflation as a situation after the pandemic may have you wondering if now is the time to cut back on your savings. But doing so could leave money on the table to use.

Also, many banks are expected to increase interest rates as many as two to three times on loans and decrease the interest rates on FDs and saving accounts this year to try to curb inflation. Savings account rates may not immediately jump up, but banks will ultimately try to decrease interest rates on savings accounts, which were 4% before the pandemic, now it’s 3-3.5% as many banks applied in this financial year.  Getting into the habit of saving now means you’ll have more emergency fund money.

If you have already started to contribute to savings goals, now could be a good time to evaluate them. If you’re falling short on cash to spend each month due to increased prices of products, can you elongate your emergency fund savings goals by a few months?

Keep in mind that all goal-oriented financial journeys are a marathon, not a sprint—and now could be your chance to find a new pace to manage your personal finances for inflation. 

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