Budgeting Better for Inflation or a Recession

Sep 1, 2022

6

min read

T

he world is in combat with inflation. The decade-high inflation is like a monster that eats away the purchasing power of people's hard-earned money. The rising cost of necessities such as gasoline, food, and medication has dramatically impacted families' budgets. Since people have to pay more for their basic needs, they have less to spend on other things. As a result, consumer spending is expected to fall, posing a risk of a recession.

A recession is even worse. It is a decrease in economic activity characterized by loss of job, reduction in income, and a decrease in economic growth. Most experts believe that the US economy is sliding into a recession and people need to prepare for it.

Proper financial planning is the only defense against inflation and economic downturn. In this post, we'll go through 10 ways to better prepare your budget for inflation and recession.

Budget Calculation — Source : Storyset (Freepik)

Cut The Unnecessary Expenses.

You will have to switch into "survival mode" during a recession. Consequently, it would be best if you aimed to minimize costs and save as much money as possible. Subscription services like Netflix, Amazon Prime, a gym membership, Spotify, etc., all have recurring fees that take up a considerable part of your budget. Create a spreadsheet or use a budgeting app to keep track of all your regular expenses, and then cancel the ones you rarely use.

Think about the worst scenarios possible and prepare for them. Savings work as a cushion to rely on during hard financial times. Thus, the expert advises setting aside money equal to three to six months of living costs. To achieve that, you need to cut off extravagant and unnecessary expenses.

Also, negotiate essential expenses, including insurance premiums, bank fees, credit card costs, and mobile payments. We tend to research the options, negotiate at the beginning, and stick with them for the rest of the time. However, exploring alternative possibilities in between is essential to get the finest deal and save the most money.

Reduce Electricity Usage

Like tiny drops make the mighty ocean, small changes can save you a lot of money. We rely heavily on electricity for our day-to-day activities to power a smartphone, laptop, refrigerator, or light bulb. As a result, electricity bills are a significant portion of our budget. We must, however, make every effort to minimize our power usage. If used recklessly, the electricity can light up your home for now but may darken your financial future with its hefty fees.

Electricity Conservation — Source : Storyset (Freepik)

Thus, finding ways to curb electricity expenses is crucial by adopting small changes to reduce energy usage at home. Here are some tricks to save on electricity bills:

Turn off the lights when not in use.
Draught proof your windows and doors.
Wash your clothes at lower temperatures.
Dry your clothes on racks instead of using a dryer when possible.
Have quick showers.
Use LED bulbs.
Unplug the electrical appliances when not in use.
Clean and service your HVAC system often.
Come together as a family and stay in one room.

Reduce Credit Card Debts

Debt is a pitfall you can quickly get into, but it is hard to get out of. The financial hard times hit hard to people with debt as they have difficulty maintaining their living expenses, and there's a pile of debt to pay. Worse still, interest rates tend to rise with inflation, making it much more difficult to repay debt. Apart from inflation, debt is another monster that sucks up all your potential savings. So, it would help if you prioritize paying off the debt. The most common debt is credit card debt which you should get rid of during the economic downturn:

Here are some tips and tricks to reduce your credit card debt :

Switch to credit cards with 0% APR.
Consolidate the CC Debt with a low-interest personal loan.
Find the right debt management strategy.
Opt for debt relief services.

Refinancing Mortgage

For homeowners, mortgage payments may represent a significant portion of monthly expenses. It is possible to save money on your mortgage by refinancing your house. Many Americans' homes serve as a lifeline when times are financially tough. It is an excellent tool to hedge inflation as its prices rise along with inflation. Also, during a recession, the home value may fall for the time being, but with it, mortgage rates are also falling. You may use the trapped home's equity through refinancing and take advantage of low mortgage rates.

However, it is essential to remember that refinancing isn't the best option for everyone. There are several factors to consider when deciding whether to refinance your mortgage, including mortgage rates, loan amount, home equity, and the cost of the process. As a general rule of thumb, refinancing is a good option if you can lower your current mortgage rate by at least 2%. Thus, you should carefully consider all aspects and only refinance the mortgage if the number works in your favor.

If you are wondering which refinancing option to choose, read this article to figure it out.

Note: Interest Rates have to be in your favor to refinance. At this time, dated 2022, the housing market is not at its best, with interest being at a ten-year high. So, based on your current home appraisal value and home equity, consider if refinancing is the best fit.

Piggy Bank Building — Source: pch.vector (Freepik)

Savings and CD Programs

Savings work as a safety net during the economic downturn. Inflation indeed eats up your potential savings, but you should still do all you can to save by cutting down on unnecessary spending. There's a strange connection between conservation and inflation. Inflation eats away at your savings, but putting money aside may halt the inflation rate.

Money saved in savings accounts or invested in Certificates of Deposit (CDs) is a safe bet during economic uncertainty. You can beat inflation, or at least keep up with it if your money earns interest. Also, you'll have access to much-needed cash. In addition, the CD is the most secure investment during a recession since the interest rate remains constant regardless of the state of the market.

Planned Groceries

All the hard work is to feed yourself and your family. It would be best if you did not cut off your meals to save money. But, you can do some financial planning to save money from unnecessary purchases. Walking on the aisle for the groceries, we end up buying more than we need. This small unnecessary purchase adds to the groceries bills blowing up the budget every month. Thus, planned groceries are crucial to sticking to the budget and not spending more than we need.

Grocery Cost Calculator — Source : Storyset (Freepik)

Here are some tips for the planned groceries:

Shop online to avoid impulse buying.
Make a grocery list and stick with it.
Don't take kids to groceries most often.
Buy imperishable goods in bulk to get discounts.
Buy more meatless meals.
Shop at the local farmers' market.
Use coupons in-store and online.
Buy frozen meals.
Shop private label brands over expensive brands.
Shop at the sale and discounted price.
Buy things that you need, not what you want.

Consider Tech/Energy Stock Investment.

Investing during a recession may seem like a horrible idea initially, but it can be a very profitable strategy if done correctly. But you ought to have some additional funds. Don't risk debt to invest money you don't have. Stocks in the energy and technology sectors might be good bets due to their high growth potential in the years ahead. Consider putting your money into stable businesses you know can weather the economic downturn. It would help to buy shares in these firms when prices fall briefly due to market circumstances. Since the market is cyclical, a current decline in price will likely be followed by a rise at some point.

Make Your Meals

Dining in expensive restaurants might be a significant expense you can offset by making your meals. This saves you money and is also suitable for your health. Also, you can plan your meals and list them on your grocery list to not overbuy the food you won't eat. It's ok to dine out once in a while but don't order foods you can't eat and throw away. It's crucial not to waste any food and money that goes into buying it.

Homemade Meal — Source : Storyset (Freepik)

Try Staycation

When you are in saving mode, traveling is not in the cards. But, traveling is essential to escape the daily grind and refresh your mind. Traveling always does not have to be heavy for your pockets. You can try a staycation, which is budget-friendly but equally rewarding as a vacation.

Read this article for the top 20 spend and reduced staycation ideas.

Save On Gas Money

Gas prices are soaring and are one of the critical drivers behind the skyrocketing inflation. Thus, planning your drive to save up the gas is essential. You may cut gas costs by carpooling or using public transportation instead. Here are some tricks to save on gas money :

Pay with cash to the pump to get the discount.
Carpool to share fuel cost.
Go electric.
Use public transportation
Use a gas rewards card.
Find the best price with the gas app.
Plan your routes to make the most out of it.

Conclusion

Inflation and recession might make budgeting challenging due to the high living costs. However, a well-planned budget is your best defense against them. It's crucial to budget better and sticks to the budget plan. Prepare for the worst by going into total survival mode and putting away as much money as possible. Having a well-thought-out financial plan and budget will make the economic downturn seem like a passing breeze.