Inflation is slashing many families' budgets and saddling them with debt. But that doesn't have to be you. Here is how you can budget for inflation in 2023.
Food's more expensive, gas prices are up, and wages just aren't rising fast enough. Do you feel the squeeze yet? Most families say they do. Put simply, your money can't buy as much as it once could, all because of inflation.
But what does that really mean? Inflation is a word that gets thrown around a lot but not everyone truly understands it. Let's take a deep dive into the inflation definition, how it affects you, and how you can fight back.
Inflation is the increase in costs of goods and services over a period of time. Historically, things cost more year after year. That's because inflation is caused by a wealth of factors, including supply chain issues, global instability, higher wages, and lower interest rates. For example, an item that cost $1 in 2000 would cost $1.80 in 2023.
Over the past 10 years, inflation in the US rose on average 1.88% per year. But 2021 brought higher-than-usual inflation. Prices rose by 4.7% in 2021, 8% in 2022, and 5.8% in the first quarter of 2023. That means families are having to spend more money to afford the same items as they once did.
Typically, everything gets more expensive with inflation. But some categories might see sharper increases. For example, in 2022 food prices went up 9.9% but egg prices specifically went up close to 237% (due to high feed costs and an avian flu outbreak).
You've probably noticed you're spending more money at the grocery store now than you were two years ago. If you've been diligent about keeping track of expenses, you can do the math to know how much inflation is costing you.
Fortunately, there's an easier way. Use the Bureau of Labor Statistics inflation calculator for a rough estimate. This tool will tell you how much your purchasing power has changed. For instance, if you earned $30,000 in 2020, you would need to earn roughly $34,791.12 in 2023 to keep up with rising costs.
Bookmark this tool for the next time you have a pay negotiation coming up. Ideally, your wages should (at the very least) keep up with inflation.
Unfortunately, most workers have not gotten substantial pay raises to match inflation. So they quickly feel it: getting to the end of the month gets harder and many resort to credit cards to make ends meet. This can quickly spiral out of control, as debt repayment and late charges make it even harder to get by and save.
Fortunately, you don't have to fall into this difficult position. These 9 tips will help you through these tough times until the economy bounces back and prices go back down.
Do you know where most of your money is going? How has inflation affected your spending? Take a hard look at previous bank and credit card statements to find out. Tally up all the expenses for each month, then break them down into different categories.
Now that you know what's happening to your money, it's time to make a plan for all your spending. If you aren't in the habit of making (and sticking to) a budget, do it in 2023.
There are so many approaches you can take depending on your financial situation and goals. But a good place to start is the 50/30/20 rule: 50% of your income goes to needs, 30% to wants, and 20% to savings. It's not overly austere, which makes it easier to practice for a long time.
If those numbers aren't feasible for you, adapt them to your situation. Consider spending less on wants and putting more towards needs or savings. Budgeting is personal, make it work for you.
Get creative to find ways to save on non-essentials. That could mean carpooling to save on gas, being strategic about eating out on a dime, or canceling a streaming service subscription. Find a balance. While easing financial stress is great, cutting out all the fun stuff makes life dull.
Yes, you can save money on food without going hungry. Here are some ideas:
We won't tell you to never turn on the heating or cooling. But you can take steps to lower your utility bill by 50%, no matter if you rent or own your home. Most don't require spending any money. But if you want to go the extra mile in weather-proofing your home, snag the rebates, discounts, and tax credits made available by the Inflation Reduction Act of 2022.
Did you know you can pay less on regular expenses? Things like cable subscriptions, cell phone plans, and auto insurance are often negotiable. If your contract is almost up, give your providers a call. They may offer bundling, renewal, or safe driving discounts. And if they don't, it's time to shop around for better quotes.
So far, we've discussed ways of slashing your expenses. But another way to survive inflation in 2023 is to increase your wages. Of course, that's easier said than done and not a possibility for everyone. But if you can, negotiate a raise to at least keep up with living expenses. Use an inflation calculator to start negotiations, and go from there.
