Budgets, inflation, & smart money moves
A year ago, we were amid pandemic worries and woes; fortunately, a year later, the end is in sight. However, we have traded surging Covid cases for skyrocketing inflation. And while I will gladly take rising prices over a loss of life, the current monetary environment is causing quite a fright.
So, what money moves should you make if soaring prices are eating into your budget? Let's find out!
Budgets alleviate financial stress
Budgets are oft-painted as dull, boring, and overly strict, but I disagree with such sentiments. Why? Because a great budget makes life seamless and takes the stress out of money. Therefore, when inflation is causing you to worry, the first place to scrutinize is your budget (or lack thereof).
You see, in the United States, less than half of adults have a budget. Yet, at Lundeen Abrams Advisors, we believe that budgets are the foundation of financial success.
Therefore, let's establish the fundamentals of a good budget for those new and seasoned to budgeting alike.
Budget fundamentals
The most important part of a budget is determining how much money you bring home each month (or jointly if you are married). Why? Because if you don't know how much you make you will have no idea how much you can spend. Hence, once you have deduced your net income each month after taxes, you are ready to move to expenses.
When it comes to expenses, there are four categories to consider: essential, debt, saving, and discretionary expenses. •Essential expenses include necessary things to live, such as food and shelter. Notably, food only includes grocery store expenditures, and shelter includes housing and essential utilities. •Debt as a category includes any monthly debt payments you need to make, such as student or credit card loans. (Mortgage payments go in the essential category.) •Saving refers to how much you plan to save each month, and an excellent place to start is around 15% of your take-home pay. •Lastly, discretionary expenses include things such as streaming services, restaurants, and other optional purchases.
Once we have deduced our four expense categories, we must ensure that they fit into our net monthly income. What does that mean? Well, subtract your expenses from your net income, and if the number is greater than $0, they won't cause you to go into debt.
However, if they do not fit, you will need to lower your discretionary spending and savings and possibly consolidate your debt into a manageable monthly payment.
Significantly, the discretionary spending category should depend on HOW much of your income remains each month after accounting for your other expenses. Once you have balanced your budget, you can move on to smart money moves!
Smart money moves
When inflation is on the rise, you owe it to yourself to make smart money moves, and the first task is to ask for a raise at work.
With the Great Resignation in full swing and inflation surging to nearly 8%, your employer needs you now more than ever. Therefore, implore your manager to review your work while explaining why you deserve a raise. Because, after all, those who don't ask don't receive!
Furthermore, when making purchases, weigh generic alternatives to their name-brand counterparts. If there is little to no compromise, you can reverse inflation on many household staples by going with the store brand while not lowering your quality of life!
Additionally, another smart money move is ensuring that you don't have too much cash on hand. While having an emergency fund of 3-6 months is prudent, anything above it may be worth investing. And while we are on the subject of investing, be sure to review your investment portfolio, with which we are happy to help.
Don't wait until it is too late
Inflation waits for no one, so start reviewing your budget and making smart money moves today. At Lundeen Abrams Advisors, we help our clients with investing and financial planning. So, if you have any reservations about how inflation could affect you, know that we are here to help. After all, we are just a phone call away!