Reduce Debt Increase Wealth

How to Budget for Inflation

December 12, 2021 MIsterchuck Season 2 Episode 91
Reduce Debt Increase Wealth
How to Budget for Inflation
Show Notes Transcript

What can be done to lessen the impact of inflation on household budgets. What is inflation and how to tell if it is affecting your budget.

 Article Links:

https://pocketsense.com/budget-inflation-2221946.html By William Adkins

https://www.theadvertiser.com/story/money/business/2021/08/07/how-account-inflation-your-budget/5499935001/    By Mary Fox Luquette

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Charles McDonald:

Hello, I'm your host, Mr. Chuck, I retired accountant turn truck driver, I reduce my debt in a relatively short period of time, debt reduction, to achieve financial freedom takes commitment, confidence, determination, how to budget for inflation, what can be done to lessen the impact of inflation, household budgets? And what is inflation and how to tell if it's affecting your budget. I have two articles in my show notes pocketsense comm budget inflation, and the other one from the advisor calm how accountant inflation, your budget. What is inflation? Well, if you've gone to the gas station, you've probably noticed the price of gasoline has gone up over the last two, three months, six months, it's I think up by over $1 in the last six months, maybe even more, depending on the area where you live. And if maybe you've gone to the grocery store and noticed that if you're buying about the same stuff every week, and you're paying a little bit more for it every week, that's a sign inflation is starting to kick in. That's how you tell when you start paying for more for the same things you buy. And you compare that to what you paid for last month, six months ago, or last year. And if you're paying more for the same items, that's a sure sign inflation is starting to kick in. So what do you do how to you lessen the impact on inflation? Well, you can one, buy less goods, cut back on what you're buying or paying for. Or if you need certain items over time, you can buy in bulk. And you can buy when it's on sale. So you need to have the cash available to pay out the little extra this month in order to save some money in the future months. So how you do that? Well, you have to have a budget, he can also tell inflation's kicking in if you have a budget, because you prior already seen it, maybe you don't realize it. But if you notice things like your gasoline, your groceries, maybe you're dining out entertainment, if you're starting to pay more for that every month, and you can go back and look at what your budget was three months ago, six months ago, and now you're paying more for today than you were then that's probably a sure sign of inflation. Now everybody's blaming COVID for everything, but that's not necessarily the cause of inflation. But what causes inflation is the simple economics supply and demand. When the demand is much greater than the supply, then the price of those items is gonna go up. What causes the demand to go up on those items? Well, it could be because of COVID. Member when COVID first started, everybody went to the grocery store and bought a bunch of toilet paper. So the supply a turn of paper was reduced for a period. If you could find it, it was probably not on sale. So it really realistically, the price of it went up because if he cannot buy it on sale, you're paying more. Also, the government when they're spending a lot of money, like they have been for last 10 years. And they're buying things and that uses the same products or items, materials for things that you want to buy. And then that would cause a shortage of those items. And this good example would be steel. If the government is buying things made out of steel, and their increase in what they're buying, then the steel supply is going to go down which is gonna cause the price of steel to go up. Then when that happens, the price of your appliances, washer and dryer, your refrigerator, anything made out of steel is going to go up in price. But it's not always just one item is a multiple things that happens throughout inflation runs somewhere around 2% for the last 10 years, but now we're gonna see inflation like it was In the early 80s 1980s, when inflation was really high, I remember when savings accounts were paying 16% interest, because inflation was up so much. And mortgages on homes were around 12 to 15%. Because there is a shortage of money. So when the supply of money was down to price one up, so you pay more in interest on my first home is a good example. My first home I bought, I got a deal on an interest rate at 12 and a quarter percent, which is nine to 10%. Higher than what it is today. Is that gonna happen again, I don't know, I can't predict the future. But most likely mortgage rates are gonna start going up. So another way you can apply a fight back on inflation, is have a fixed rate mortgage, meaning that your interest rate is the same throughout the life of the loan. The only drought that downsides to that would be that if you try to refinance to get more cash out of your home, you're most likely gonna pay more in interest. If you try to get a line of credit against your home, most likely, the interest rate is gonna be much higher. So beware, what can you do to offset that? Well, you can change the products you're buying, and buy and non name brand product, for instance, and pay a little bit less. If you go to the grocery store, maybe you can buy some chain products such as Kroger, Giant Eagle, whichever grocery store you go to, they have their own line of products. If you like the taste of those items, then you can say money by buying the grocery store brand name, instead of a regular brand name. only do it if it's a good product, and you'd like to taste, he can also buy in bulk. When the items go on sale, you buy more of it, and you stock up if if you have the space to stock up, he can stock up on those items, so that you can put off buying them in the future months as the prices is going up. It's just a delay in that it could help you with your budget. He can also my simple method of doing a budget is I'm not going to cover this later on in this episode, you need to update your budget, dollar amounts on a regular basis. That way, you will all be accounting for the increase in your costs. If you know something's gonna go up, increase that in your budget. For example, natural gas to heat My home is supposed to double in this next winter. So I increase my budget for it. So to account for that, so that I know in advance that that money will be there. And I know it's going to be going out. He can also look at what the inflation rate is you once a year maybe and you can then go through and update your budget amount by whatever the inflation rate is for that particular year what they're projecting it to be. And that's only going to be a guesstimate. By using my simple budget, you can update it month in and month out. And it'll be a gradual increase. And then six, nine months from now you can go back and look to see how much a category may have gone up. And then that is a sure sign we're in a inflationary period. If the bank start raising the interest rate on mortgages and loans, that's another good sign meaning that they're short of money, money is starting to become a little bit tight or harder to get and they're going to increase the rate of interest that third loaning the money on. Also the rate of interest you're getting on your savings account should eventually increase also, if not, then you might want to consider looking for a high yield savings account that's going to pay you more in interest. For those of you that are already have a budget you probably already know you can go back and look at last month, six months a year ago on different categories to see how much the dollar amount has has been going up. What can you do to offset offset that is, look for items and your budget that you're one no longer using or two, you can do without, or maybe come up with a alternative product that you can get at a cheaper cost. A good example would be cable TV, maybe you have cable t TV subscription, and you're paying $150 a month, that's just an example could be more or less. And you can do away with that, and get one or two streaming services and watch the same stuff. You got to do your homework and do some research. But you should be able to find streaming services for a whole lot less money than what you're paying for cable TV cell phone service, he might be able to change plans, where you're getting a better plan, unlimited tax talk and data for either the same amount or for a lesser amount. Even if it's a lesser amount for three or six months, because you change providers, you still that's still gonna help your budget in the short term, but you need to be looking more for long term solutions. So get rid of this stuff, you no longer use no longer need, or you can call your providers try to get a cheaper plan that does about the same thing you're paying now. And you should do that on a regular basis, every couple of years, you should look for new providers on your cell phone. Because it's so competitive out there, you might be able to find the same type of service that you're used to today, at a lesser price, even if it's 10 or $20 a month cheaper, that's 10 or $20 more a month you're gonna have also when inflation is kicking in and going up, you need to cut back on items that you're using, such as reduced the number of times you go out to dine, if you're going out twice a week, reduce it down to once a week. If your gasoline is going up, which it probably is, then you need to consolidate your trips, and does don't run to the store when you need one item. Make a plan, make a list, make one trip and don't use your car as much and your say on gasoline. So use a less of the things that you need. Try to get a better product the same product for a better price by using store name brand products, and buy in bulk and buy them bulk when the items are on sale. Use coupons to help you get a discount. And all these together will help you offset the effect of the inflation is having on your household budget. Next up, I'm gonna be talking about how to do a simple budget. But if you have a computer, and you have a spreadsheet on the computer, I have a budget template, I'd be more than willing to email to you go to my Facebook page, reduce debt, increase wealth calm. And that's all together one big long word. There's a video there on how to use it, send me an instant messenger with your email address, and I'll send you the template, then you can save it as or you can open it up and then save it as budget 2021 for this year, and then you can open it up again next year and save it as 20 budget 2022. And it's a full 12 months already set up and the different categories. And you can watch my video it only shows one month, but it's the same thing for all the months so it's fairly easy to use and help you get started. Now how to do a simple budget. So what I'm calling a simple budget is just basically you go through your check register. If you don't keep a check register. Then you go to your on your bank account your checking account online, and you just scroll through everything that you paid for out of that checking account. The first grouping you want to do is all your loans, list all your loans, your payment, the name, the due date, payment amount, and if it's a credit card, the minimum payment amount and that's it. A credit card, the rate of interest you're paying. Why you want to know the interest rate on credit cards is because you want to put them in order of the highest interest rate first, so that you can pay them off, pay them down and pay the least amount of interest as possible. That will help you free up your budget. Remember, you want to quit creating new debt, and you want to maintain your savings, you want to maintain your emergency fund, inflation can eat through your emergency fund, and then you won't have anything. And then before you know it, you'll be creating new debt. The next grouping is what I refer to as fixed expense. So we got all our loans listed out. And that includes student loans, payday loans, whatever loans, and then our fixed expenses is the items that you pay every month, no matter what other than your, your loans. So it'd be utilities, it'd be groceries, it'd be gasoline, it'd be maintenance on your auto of B insurance on your auto. If you have a mortgage that has an escrow, your real estate taxes, and your homeowners insurance will be included in that escrow. So there's no need to account for those items. If it changes or like groceries and you buy you pay for it more than one time a month, then you need to look at that month, add up all your groceries and figure an average. So you add them up six or seven times you paid for groceries, and then you divide it by six or seven to come up with an average. Continue doing this look back one month to start with, then look back to second month and look for new items that you paid for in that particular month. Go back that third month, and look for any items that you paid for in that month. That is not been paid in the previous two months. And that way, you'll get a nice clean list of things that you're paying for on a regular basis. If you use a credit card to pay some of your monthly bills, you got to do the same thing go online to that credit card. Look for items that you pay for every month no matter what you're putting on that credit card, and those got to be included in that budget also. So it doesn't really matter how you're paying for it is this your are paying for it. So you know budget is simply put is the money in money out. If it's not going out, then that is money that can be set aside and to a savings account. So if you don't have an emergency fund, your goal would be to set up a savings account and get it up to $500. And then happy Richie $500, then build it up to 1000. Once you achieve that, then you want three months worth of expenses, six months worth of expenses, nine months worth of expenses. So they have something bad would happen. Whether you get sick, or unemployed, you'd have the money available to pay your expenses to get by for a while until you can get back to work. That's a simple budget is not a whole lot to it. But it's important that you do. Why? Because if you don't have it, how do you know how much money is gonna go out? How do you know when something's gonna become due? If you can look forward and know, oh, I have auto bill insurances do twice a year, I pay it every six months, and it's coming up in two months. Now you will know it's coming up, and you can have the money set aside to pay for it. Saving 112 of that or one six of that bill is easier to do than coming up with the full amount twice a year and that one particular month. It's gonna take you some time, it will pay off in the long run, and it's well worth doing. Earlier I mentioned about credit cards when inflation's kicking in and that if you have less credit card debt is going to give you more cash to spend on the goods and services that are necessities. But one thing I neglected to mention There's the credit cards, rate of interest is based on the federal prime rate. And when the federal prime rate goes up to his credit card, interest rates are gonna go up. So maybe you're paying 17% interest on a credit card six months ago, maybe tomorrow, it might be 19%. So the your cost of carrying that debt on a credit card is going to go up, and it's going to go up faster, when there's inflation, that's something you really need to be concerned about. shouldn't really be in the mode of getting your credit cards paid off. So that this rate of interest increase caused by inflation is not going to affect your budget. As much as it can be back in one moment with my final thoughts. If you listen to this podcast reduce that increased Well, on an Apple device, scroll through all the episodes towards the bottom, and you can select write a review, and leave your comments. And you can rate this podcast, I appreciate all feedback. And I thank you for your time in doing so inflation is going to affect all of us. And the only thing we can do to help fight off inflation is to know what our budget is. And to know how much money we have coming in, how much money we got going out? Do we really need to be paying for all those things that we're paying for? Can we cut back someplace, can we plan to cut back in multiple places, maybe we can call our cell phone provider and get a better plan at a lesser price. Maybe we can do away with cable TV and screen our TV instead, have one or two streaming services and cut out the cable TV that's probably costing you way more than $100 a month, there's thing we all can do to offset the inflation effects that we know are coming. Whether we know they're coming or not, they're gonna be coming. It's something that happens year in and year out. There's not much we can do about it. But it will if we can control our budget, stay our debt kit, keep our debt under control, so that we have more cash available to pay for things that we need. Instead of things we want, then we're going to have the money available without having to sacrifice a whole lot to maintain our lifestyle that we're used to. So whether or not you think there's gonna be a problem. If you are proactive and plan ahead, you'll be much better off. If you want a budget template, go to reduce debt increase wealth.com Facebook page, you can look at the video I created on how to use it. If you're interested in using it, go to instant messenger. Send me a note, please send me your template and give me your email address. I promise I'm not gonna spam you later on. I'll just send you the template and you can use it to help create your budget.