How to Manage Your Expenses During Inflation

Are the effects of inflation slowly creeping up on you? Perhaps your grocery bills are up $300 a month, and your trip to Hawaii was almost double the cost of the one you took a few years ago.

Here are some valuable tips to prepare your finances and stay ahead of inflation.

What is inflation?

Inflation is the increase in the price of goods and services over a period of time.

The value of money decreases, and the cost of living goes up. This may be due to several reasons, such as printing more money, an imbalance between demand and supply, or an increase in cost along the supply chain. 

Inflation is significantly more impactful for business owners than individuals because business owners feel the pressure from both sides—your business and personal expenses.

How to Manage Your Expenses During Rising Inflation

One of the most important things to get organized on during high inflation is your cash flow plan. 

A cash flow plan will help keep you on track towards your goals, help prioritize your expenses, and avoid financial hardship. 

If you don’t have a cash flow plan, the first step is to build one. 

If you have a cash flow plan, you want to review every expenditure in your cash flow. Look over the past several months, and see where you’re overspending and where inflation is hitting the hardest. You may need to readjust your plan and the allocation of money. 

There are three main areas of your cash flow plan that you want to allocate funds to.

  • Goals: Your goals should be the most important area. Think of them as your five big rocks, the areas you want to allocate money to first so you don’t look back and feel like you’re behind on your goals. Money towards your long-term goals should stay inside your holding company. Money towards your short-term goals should be in your personal savings account.
  • Committed expenses: These are generally fixed expenses, such as mortgage payments, insurance, and car payments. They’re quite consistent and often aren’t hit as hard by inflation.
  • Weekly spendable expenses: This is money you’re allocating towards your day-to-day lifestyle, like groceries, dining out, kids’ activities, and travel. Your spendable expenses are likely to get hit the hardest by inflation, but you might not notice those prices going up until you see your credit card bills and start tracking.

How to Cope With Inflation

Don’t let the rising costs impact your cash flow to the effect that you’re not accomplishing your goals. Here are some tips on how to deal with inflation and stay ahead of the curve.

1. Pull money out of your corporation or personal savings account

If you want to maintain your lifestyle and continue spending as you do now, you’ll need more cash available.

You can pay yourself extra dividends from your corporation, or if you have some personal savings or a slush fund built up over the years, you can use that to allocate money towards your day-to-day expenses and weekly cash flow.

The main thing to be mindful of with taking money out of your corporation or savings account is that this will possibly affect your goals. 

You have a situation where you’re dipping into money allocated towards the goals you’re ultimately trying to accomplish.

(Thinking about how a recession can impact you? Here’s how you can prepare yourself and your business)

2. Adjust your lifestyle 

Alternatively, you can change your lifestyle and cut back to maintain your original cash flow plan and be on track to reach your goals. This would mean a tighter budget, which can look like dining out less, opting for cheaper brands at the grocery store, or shopping less.

If you don’t necessarily love having a tighter budget, keep in mind inflation won’t be here forever. For the time being, this will allow you to maintain money towards the most important goals in your life and stay on track.

3. A combination of pulling extra money out and minorly adjusting your lifestyle

A hybrid approach involves cutting back on some day-to-day things while continuing to enjoy life. 

For example, if going on vacation remains important to you, you can continue vacationing by cutting back in other ways and taking a little bit of money out of your corporation or savings account. 

The combination of taking a bit of money from your goals and curbing other areas in your spendable expenses will ensure that you’re still enjoying your life without affecting your goals long term.

This will help overcome inflation and work with the increasing costs of our day-to-day lives.

(Don’t let your debt fall to the bottom of the pile, here’s how you can strategically pay off your debt during inflation)

Watch the video on this topic

Staying On Track

Having an effective and clear cash flow plan is ultimately the most important thing.

If you don’t have that cash flow plan in place, you won’t know where your money is going. You’ll look back and feel like you should be further ahead because that money didn’t go to the right areas.

Organizing your financial future is now more important than ever. Book a call to create a  customized financial plan built around your biggest goals so your money works for you in the right places. 

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