12 Ways to Budget in an Inflationary Environment

Inflation impacts the cost at which goods and services increase. Right now, inflation is sitting at 7.5%, the highest rates our country has seen in over three decades. That means your current income likely won't stretch as far as it did even just a year ago. But don't fret, just because costs are rising doesn't mean your budget is blown. These 12 tips will help you budget, save, and earn more in today's inflationary environment.

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The first step to creating a budget is having a realistic idea of how much you spend on a monthly basis. Look at the past 90 days of your bank and credit card statements to get a realistic picture. Every dollar you spend during this time should be tracked and then categorized. From there, you can move onto revising or creating a new budget.

Creating a budget isn't exactly fun, but it can be an extremely helpful way to make sure you're living within your means and also leaving room for important things like saving money. Your budget should start from your net taxable income, or how much you earn each month after tax. Then account for all essential expenses like housing, groceries, utilities, or debt payments. Finally, add in additional categories as your income allows.

While this may seem obvious, it's important to emphasize that once you create a budget, you should stick to it.

A lot of people don't realize how much "extra" they spend each month on things that fall into miscellaneous categories or simply aren't necessary for living or maintaining a stable quality of life.

After reviewing your spending habits over the past 90 days, start to trim the fat, eliminating any subscriptions or services and cutting back on spending in certain categories. Saving $10 here and there really can add up quickly, leaving you with more money for necessary expenses or savings.

ALSO READ: How to Cope if Inflation is Wrecking Your Retirement Budget

Fixed costs are one of the best ways to combat inflation because, despite the cost for goods increasing, the payment stays the same. But very few costs outside of rent, a car payment, or a mortgage are truly fixed. That's why it's important to focus on lowering your variable costs.

Expenses like groceries, eating out, clothes, household products, utilities, or fuel will directly impact your budget. Consider biking to the places you need to visit, using public transportation, or carpooling with a colleague or family member. If you tend to eat out a lot, cut back on how much you eat out and cook more at home. It's better for your budget and often for your health, too.

Debts can crush a budget quickly. Monthly mortgage payments, car loans, student debt, credit card debt, and medical payments add up. If you have a notable amount of debt and are struggling to maintain these payments as inflation rises, consider negotiating with the creditor. Medical bills are notorious for taking discounted payoffs.

You can also apply for a loan consolidation program that takes multiple types of loans into one low, fixed-rate payment. Certain credit cards offer 0% interest for debt rollovers and can be a great way to eliminate debt quickly using a fixed monthly payment.

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It's good practice each year to reevaluate certain categories of spending. Things like cellphone plans, car insurance, home insurance, and beyond often have competitive and changing rates from year to year. Reach out to an insurance agent or shop around on your own. There's a good chance you can get a better rate without compromising coverage by switching to a new provider.

Your new budget may not allow for old spending habits. For example, if you shopped at higher-end organic stores for your groceries, you may need to shop at more budget-friendly stores. Buying nonbrand products often leads to bigger savings, as does buying in bulk.

Shopping at a local farmers market over a traditional grocery store can also lead to lower prices and higher-quality products. Instead of buying new products, consider shopping secondhand for clothes or household goods. Garage sales, online marketplaces, and now online stores make this easier than ever.

The energy sector has been the most severely impacted by today's inflationary environment. Electricity costs have jumped 10.7%, natural gas costs are up 23.9%, and gasoline prices have risen 40%. This means things like fuel for your car, propane or natural gas to heat your home or cook your food, and electricity that keeps your lights on is a lot more expensive.

Do a home energy audit to make sure you're reducing your energy waste. Turn lights off when they're not in use, turn the heater or air conditioner a few notches above or below your usual temperature settings and consider upgrading your bulbs or appliances to LED and energy efficient products.

ALSO READ: Energy Prices Are Soaring: Why a Reprieve Isn't Coming Anytime Soon

You don't always have to spend money to have a good time. In fact, there are countless really fun activities that are available for free. Rather than going out for a weekend brunch with friends, consider packing a picnic and meeting friends in the park. Local museums may have days of free admission for residents. Check with your city or town to see if there are any special events or concerts that will be offered for free.

If there is only one thing you do out of these 12 tips, this should be it: Investing your money is not just a smart move for building a better future but it's critical in an inflationary economy. Inflation raises the costs of goods and services, making things more expensive, which also translates into your dollar being worth less, 7.5% less to be exact.

That means every dollar you hold right now is actually worth $0.93. The goal is to earn a higher return than today's inflation rate, ideally 10% or more.

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Many people are moving to new locations that offer a higher quality of life for their income. Big city dwellers from Seattle; New York City; Boston;Washington, D.C.; and many more are moving to the suburbs and more rural areas in search of a better quality of life and lower cost of living. While you don't need to relocate across the country if your area is simply getting too expensive for you, consider finding a new place to call home.

Cutting your budget may only take you so far. Depending on your income and area of residence, costs of living often exceed any salary bumps you might see from year to year. That's certainly the case today. You may have to find ways to earn extra income. That could be from a second job or a side hustle. There are more ways than ever to create passive or active income outside of your salaried job. While it definitely requires more work, the rewards can be huge.

High inflation impacts nearly every facet of our lives, and unfortunately it seems inflation may not be curbed anytime soon. Thankfully, by utilizing even a few of these strategies, you'll be amazed at how much money you can save. Even on a limited income, there are ways to maximize your dollar and reduce your spending.

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