How to budget during the rising inflation?

How to budget right and beat inflation impact effectively?

Factor In Inflation: It’s On Rise:

In its first monetary policy announcement for 2022–23, the Reserve Bank of India (RBI) has raised its inflation forecast to 5.7 percent against the previous estimate of 4.5 percent. But given the current inflation which is around 7% managing the budget is becoming a serious concern, especially for the middle-income groups. They need to rethink their expenses and also refrain from buying anything which is not absolutely essential.

The higher CPI largely leads to the price rise of daily need items like milk, food, vegetables, etc. which is the biggest fight for a large part of our population living in tier-1, their 2 and their 3 cities to manage.

So what needs to do to in order to manage the expenses and budget right.

1. Rethink 50(Needs)–30(Wants)–20(Savings) Rule Of Budgeting:

This popular rule of budgeting will not be effective when inflation is on the rise. Because one has to either increase the income at least 2x of what they are earning currently or become frugal in spending to save more. The rise of Income in percentage terms has never been able to beat the impact of inflation until one is willing enough to upskill fast and get into the higher salary bracket.

As per the 50–30–20 Rule Of Budgeting:

  • 50 % = Of your expense goes into needs. If possible cut down on your needs and bring it down to 10 % at least to make it 40 %
  • 30 % = Wants, which is kind of expense to buy expensive clothes, a comforting car or bike, a large home, expensive smartphones, watches, etc. one should definitely cut down the unnecessary expenses to at least 5–10 % and try to bring it down 20 % if possible
  • 20 % = Of your income generally goes into savings and investment. I feel this is where one needs to focus and increase it to 30–40 % possibly by cutting down on needs and wants. If done right this can generally help one in hedging against inflation by being more on the investment side. One should largely invest in the mutual fund or equity-linked products to generate a 12–15 % return on an average. This return does beat the inflation and gives you sufficient corpus over a longer time frame.

2. Streamline any Running loans like mortgage /home loans/Credit Cards dues

If you have mortgaged your home or property to finance your loan, you can look to refinance it to get lower interest rates from other Banks/NBFCs who may be willing to give you a loan transfer facility against your existing mortgage loan. When inflation is on the higher side RBI generally cuts down the interest rate on such loans, It is advisable to go onto any banks/NBFCs portal and leverage their mortgage loan calculator to see how much you can save in EMI interest.

If you are paying higher interest on a credit card and managing just by paying a minimum monthly against the leverage, it is advisable to look out for other credit card providers which can help you transfer the balance amount at 0 % APR and lower charges. In this way, one can save extra to have more savings in hand.

3. Shift to public transport for daily commute if possible :

When inflation is rising, Oil/Petroleum prices also shoots up, so if you use your car/bike for office commute daily, try to make more use of public transport and cut down the traveling cost. This will definitely help you save extra bucks and also help you play your part in reducing traffic and pollution

4. Cut down your spending on eating outside.

In case you are struggling with managing your budget, you should look out to cut down on your spending eating outside. You can easily save 1000–1500 rs on an average every month by this conscious effort, also you will move closer to eating healthily.

5. Increase your income

  • By upskilling for a pay rise
  • Look out for a job change and get a pay hike
  • By lending your skills for a part-time earning as a consultant
  • Maybe one can start a small business or a side hustle to see if it fetches an extra income.

6. Save & Invest as much as you can:

By budgeting it right as discussed in the 50–30–20 rule above, you can save more, and always ensure your savings are not kept in the banks apart from what is required to be there in the emergency fund. A maximum portion of your savings should be invested in the instrument which can give me at least a 15–20 % return as your hedge against the inflation.

Your investment discipline is the best way to be prepared for any black swan situation and also push you closer to your desired financial freedom

To Sum-Up:

If you are a typical middle-class family, Inflation really eats up your incomes and savings fast so you should always strive to save more and invest that into a financial instrument like Mutual funds, stocks, etc that can beat inflation over a longer period of time. Always watch out for your unnecessary expenses when straining on your pocket increases. For example, cut down on unnecessary OTT platform subscriptions if possible, not always strive to wear expensive branded stuff generic stuff also does the job well.

In a nutshell, it is always advisable to live lean and frugal when your budgeting starts to go for a toss, and never forget to invest every penny possible in a systematic and manageable way, this could be your indispensable tool to fight against the inflation.

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