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How to Save Money and Manage Finances During Inflation

Inflation is putting financial pressure on U.S. households. Consumers are now paying 6% more for goods and services than they were in March 2022, according to the U.S. Bureau of Labor Statistics. While that’s down from last year’s highs, inflation still remains steep. This persistent hike in prices makes it difficult for people to pay for basic expenses and erodes the buying power of money you hold in savings.

Increases in the cost of housing are especially severe, at a rate of 8.1% over the last year. And the burden is especially high for low-income households, for whom spending on housing, groceries, energy, and transportation makes up a higher portion of income. Adjusting your budget to cut expenses anywhere you’re able can help you weather higher costs. Here’s how to save money now to fight inflation.

1. Cut Costs at the Grocery Store

Grocery costs are up 10.2% for the 12-month period ending in February 2023, according to Food Price Outlook data from the U.S. Department of Agriculture. All food categories are impacted by inflation, but some foods will be hit harder this year: Sugar and sweets are predicted to rise 11.1% this year, cereals and baked goods 11.7%, processed fruit and veggies 11.4%, and non-alcoholic beverages 10.7%, according to the USDA.

Coming up with a strategy before you head to the store can help you slash what you spend. Here are tips to save money on groceries:

• Come up with a food spending plan: Comparing your budget with the USDA’s food spending plans can help you assess how your spending compares with suggested averages.
• Opt for cost-effective foods: Try building meals around low-cost staples such as pasta, rice, dried or canned beans, and potatoes. Canned and frozen fruits and vegetables tend to cost less than fresh, and swapping name-brand products for generic versions can help you save money without noticing a major difference.
• Meal plan: Create a meal plan each week to avoid impulse shopping or relying on takeout during the week. To save more, try searching for recipes that use ingredients you already have in the pantry and fridge, or plan meals using your grocery store’s weekly sales flier.
• Comparison shop: Compare the price of grocery products by weight to determine which option is the best value. You may also be able to save by buying staples such as pasta, canned goods, pancake mix, or toilet paper in bulk from stores like Costco and Sam’s Club.

2. Save Money on Transportation

If surging gas prices are blowing your budget, your first course of action could be limiting your driving as much as possible. If your work allows it, ask to work from home more often. Running your errands in batches, carpooling, or using green transportation options such as public transportation, biking, or walking anywhere within a short distance can also save you money.

You may be able to save at the gas pump by taking advantage of fuel savings programs at your local gas station. Many gas station chains offer discounts for signing up for text messaging, for example. A gas rewards credit card could also help you earn points or cash back on gasoline.

Last, consider lowering the cost of your car insurance. You may qualify for a lower auto insurance rate than you’re paying now based on factors such as your credit score (depending on your state) and your driving history. Comparison shop for auto insurance to see if you could save.

3. Plan Ahead for Cheaper Vacations

While some economists predict that summer 2023 airfare prices will be down from last summer’s highs, year-over-year increases in the price of jet fuel remain elevated. And with dining and hotels up in price, too, this year’s vacation is likely to cost you more than in previous years.

It may make sense to push back large vacations, if that’s an option for you. Taking a staycation, where you stay close to home and visit local attractions, take day trips, eat at local restaurants, and relax at home, can save you a lot of money now—which may make taking your dream vacation without accruing debt easier down the road.

If you have your heart set on traveling this year, plan in advance for a trip you can afford. Book your flights ahead of time—ideally at least six months in advance—and comparison shop airfare rates using online savings tools such as Hopper and Skyscanner. Having flexible travel dates can help you select the cheapest flights, as prices vary depending on the day of the week.

You can also save with a travel rewards credit card that provides a percentage back on qualified purchases in the form of points or miles. Redeeming your accrued points or miles for airfare and hotel bookings can save you a lot of money on travel, as long as you avoid paying interest charges that negate your rewards.

4. Check Your Budget

It’s always wise to audit your budget periodically as your goals and spending habits change over time. And when drastic price increases squeeze your budget tighter, evaluating your spending and building saving into your budget becomes all the more critical.

If you’re already tracking your spending in a budgeting app or spreadsheet, look over how your spending measures up against your goals. If you’ve set limits for certain categories, are you sticking to your budget? Readjust your spending goals to ensure you’re allocating enough to each category, or commit to reducing spending if you find you’re living beyond your means. If you aren’t already using a budget, you should start one now.

Look for areas to cut back. Are you paying for a gym membership you don’t use? Burning up cash on multiple subscription services you don’t need? Spending more than your budget allows on retail? Spending less on these discretionary items could give you an instant cash flow boost.

You can also try lowering your regular expenses and energy costs by negotiating your utility bills, as well as your subscriptions, memberships, cable, phone, and internet bills.

5. Pay Down Credit Card Debt

As the price of just about everything increases, it can be tempting to rely on credit cards to afford your expenses. But taking on debt can stretch your budget, and as the Federal Reserve raises interest rates to combat inflation, credit card debt can become even more expensive and difficult to pay down.

Making more than the minimum payment on your credit cards is critical to paying them off. To make larger debt payments and get rid of debt faster, consider these methods:

• Use a debt repayment strategy: The debt snowball method and the debt avalanche method are two ways to make aggressive payments on one card at a time, which can help you stay motivated or help you save on interest.
• Consider a balance transfer: If you have good credit, a balance transfer credit card with a 0% introductory APR period may help you consolidate your debt and save on interest while you make payments.
• Consider a debt consolidation loan: Like a balance transfer card, consolidating your credit card debt into one loan can be a good way to manage your debt by allowing you to make just one payment a month, ideally at a lower rate. But be sure that your score qualifies you for better terms before you apply. If you do get a loan, commit to not using your credit cards or you could end up in an even more serious situation.

6. Earn Money on Your Savings

Most saving methods can’t outpace the rate of inflation, but putting your money somewhere where it will earn higher interest can reduce the eroding effects of inflation.

For a long-term savings option, Treasury I bonds are a smart choice because they’re a safe, government-backed bond designed to match or beat the rate of inflation. I bonds are paying a sizable 6.89% yield as of April 2023. That’s a strong return for an investment that carries virtually no risk of losing your initial investment. You can purchase up to $10,000 a year in I bonds directly from TreasuryDirect.gov, and an additional $5,000 through your tax refund.

However, I bonds aren’t a good option for housing short-term savings because you have to leave your money deposited in the bond for at least five years to avoid forfeiting some interest. For savings you need to keep liquid, such as your emergency fund, a high-yield savings account can help you earn more interest than a traditional savings account.

The Bottom Line

Inflation makes basic housing, energy, food, and transportation costs more expensive. If your budget is under pressure, create a strategy to cut costs wherever you can. Economic stress can make credit management more difficult. Experian’s free credit monitoring allows you to track your credit report and see how factors such as your credit utilization ratio and payment history are impacting your score.

For any mortgage service needs, contact O1ne Mortgage at 213-732-3074. Our team of experts is here to help you navigate through these challenging times and find the best mortgage solutions tailored to your needs.

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