Are you feeling the pressure of rising costs? Groceries, gas, cars, and housing are all expensive AF! The cost-of-living crisis is no joke. If you’re stressed about inflation, here’s four steps on how to deal with the cost of living crisis.
Cost of Living Crisis Explained
First off, you’re not going crazy, everything’s more expensive. Forbes reported America experienced nearly two decades where the Consumer Price Index (or CPI), was less than three percent. This is a key indicator of overall inflation in the economy. CPI tripled from 1.4% in 2020 to 7% in 2021 and then 6.5% in 2022.
Now with inflation it’s important to evaluate your money coming in and all your expenses going out. You can deal with the cost of living crisis by completing a budget review. Decide to keep, cut, lower, or increase each budget line item.
As a recap, last week on the blog, I explained eight reasons to track your spending. Tracking your expenses seems tedious, but with this economy it’s vital to find savings and avoid going into debt. When you know where your money goes, you can beat inflation.
If you’re new to creating a budget, then here’s how I recommend setting up your budget. There are three main elements to a budget: your income, fixed expenses (they’re the same every month), and flex expenses (they vary from month to month). Check out how to setup your budget below:
How to deal with the cost-of-living crisis: keep, cut, lower, or increase expenses.
1. Keep
Start by recognizing what you’re doing right and want to keep the same with your expenses! With a rough economy it’s easy to get negative or feel defeated, but there are usually a few expenses you’ve got under control. Oftentimes we’re our own harshest critics with money. Maybe you just paid off your credit cards or car. If you’re debt-free, then set a goal to keep it that way (versus going out and getting a new car as soon as your current one is paid off!). Or, if you’re contributing to your 401(k) plan, have an emergency fund, or received a pay raise, then keep up the good work in these areas.
2. Cut
Next look for expenses you can get rid of and cut out completely. The biggest category you can cut expenses completely is your services or subscriptions. For example, you might have duplicate subscriptions for online streaming. Do you really need five different online streaming subscriptions or memberships to three different gyms?
Or maybe you have a cleaning service. It’s a nice luxury, but no longer affordable. Make hard decisions and cut whatever you can to keep up with the rising costs.
3. Lower
There are lots of expenses you simply can’t go without like car insurance, groceries, a cell phone, or housing. For these necessary bills, search for ways to lower. With an expense like insurance, call and do price comparisons. You can usually save when you bundle, pay upfront, set on autopay, increase your premium, or switch companies.
With food you can lower what you spend by meal planning, being organized with your grocery trips, and saving eating out for special occasions like birthdays or date nights. Here’s how to meal plan for beginners.
4. Increase
Lastly, there are a few things to increase in your budget. You’re probably thinking, “why would I knowingly want to increase ANYTHING, right now in my budget?” The number one thing to increase to deal with the cost of living is your income. Sometimes the math ain’t mathin’ and if everything in your budget is too tight, your income is the issue. Look at ways to boost your income with more hours at your current job, apply for a new job or promotion, or temporarily take on a side hustle.
Another area to increase is your savings for retirement and an emergency fund. The biggest threat with this economy is a job loss. Proactively start saving for a rainy day now and prepare for other unexpected emergencies, like health issues or car repairs.
Also increase how much you’re paying to your debt every month. With high interest rates, only paying the minimums is a trap. Turn things around by paying all your debt minimums, plus at least $300 or more to the highest interest debt monthly.
The cost-of-living crisis isn’t going away anytime soon. Deal with it by completing a budget review and decide for each bill do you want to keep, cut, lower, or increase!
