How to Budget Through Rising Cost of Living

How to Budget Through Rising Cost of Living

Bottom Line:

Good budgeting is especially important in times when the cost of living continues to go up because it’s easier to get into financial trouble. Although the budget you’re following may have been great before, you need to consider the higher cost of living and recalibrate your budget accordingly. Reaching out for help is not something to be embarrassed about, rather it is a brave first step in taking control of your finances.

Key Takeaways:

  • Australians can expect inflation to nudge 8 percent in the coming months, as an effect of the covid pandemic and the invasion of Ukraine also has an impact on the demand and supply of essential goods.
  • The very first step of budgeting is always to figure out where you are financially and what you have to work with.
  • If your housing expenses (insurance, rent, mortgage, etc) is more than 33% of your monthly income then you need to reconsider your housing situation.
  • Setting goals will give you something to work towards and a great sense of achievement when you succeed but make sure they’re realistic.
  • If you need help to get you on the right track, use Debt Fix’s free budgeting calculators and contact us for an obligation free assessment.

Budgeting can be difficult at the best of times, so it’s understandable to find it hard to keep your head above the water while the cost of living continues to go up. While there are no quick fixes to the price of fuel, groceries, and energy bills, there are ways for you to minimise your spending and develop good saving habits. Good budgeting is especially important in times such as these because it’s easy to get into financial trouble, but hard to find your way out of it.

Why is the cost of living rising?

The simplest answer we can give you is inflation but, like most things in life, it’s more complicated than that.

Australians can expect inflation to nudge 7 per cent in the coming months, thanks to the effect the covid pandemic and the invasion of Ukraine has an impact on the demand and supply of essential goods. This increase is the largest we’ve experienced in over 20 years, and we’re feeling it every time we go to the shops or fill up the car.

The driving factor behind these price increases is the cost of oil. Not only does this hit you at the bowser, but it also makes everything else more expensive as companies pass the increased price of freight and international shipping onto you. So, the only real way to ease cost of living pressures would be to decrease the price of oil, which is unlikely to happen until peace is achieved in Ukraine. Unfortunately, the government has very little control over the price of oil and experts are predicting that these price hikes will be here for the foreseeable future.

Given these circumstances, the best thing you can do is hunker down and begin financial planning.

Keep track of your finances

Whether times are good or bad, step one of budgeting is always to figure out where you’re at financially and what you have to work with. This can be daunting at first, which is why we have a free budget calculator to help you out.

To have as accurate an account of your expenses, you want to create a list of your recurring expenses (bills, groceries, childcare, etc.), and make sure everything is covered by your monthly income. As the cost of living is rising, you should look closely at each bill and receipt to see how your personal expenses are increasing – this increase will continue as the months go on and should be considered when creating your budget. Ideally, your income will cover all these expenses with plenty left over. If this is not the case for you, then you need to consider either cutting back on your expenses (more on this in the next section) and/or increasing your income by picking up extra work, asking or a raise or promotion, begin searching for a new job that pays more, or look into what government support you may be entitled to.

If you already have a budget you’re following, then you need to reassess it. Although it may have been great before, you need to consider the higher cost of living and recalibrate your budget accordingly.

Save where you can

As the cost of essentials like groceries and petrol increase, you need to make up the difference by saving money elsewhere. Here are some super saver tips:

Shop around

There are many expenses that are non-optional, like rent and bills, but how much you pay can be changed.

If you’re housing expenses, be they the insurance or the rent or the mortgage, is more than 33% of your monthly income then you need to reconsider your housing situation. Lower your insurance rate, refinance your mortgage, and look for more economical housing, or begin looking for a cheaper rental property.

Next, review how much you’re paying for your internet, phone, gas, and electricity, and then see if there are cheaper plans being offered by other companies. When signing up for plans with new utility providers, try to avoid lock-in contracts so you can continue to switch as cheaper plans become available without needing to pay cancellation fees.

Finally, expenses associated with your car need to be closely considered. Some cars cost more to maintain than they are worth, so if you’re needing to thousands of dollars a year to keep your car running, consider selling it and getting a less fussy vehicle.

Get local

Supporting your local community by shopping local can actually save you money. Fruit and veg from the local market are often cheaper than it is at the supermarket, buying clothing from local boutiques saves on shipping costs, and if you can walk to most of the places you’re shopping in then you won’t need to fill up your car as regularly.

Cut back

Real savings require some level of sacrifice, so look at your expenses and think deeply about what you actually need versus what you simply want. Although treating yourself from time to time is ok and can really benefit your mental health, eating out regularly, keeping your alcohol shelf fully stocked, signing up to every streaming service, and buying new clothes to keep up with every passing trend isn’t necessary. Cutting back and making sacrifices is hard, but the extra cash that you’ll save is worth it.

See here for more hints and tips on how to save as much money as possible.

Set achievable goals

Setting goals for yourself will give you something to work towards and a great sense of achievement when you succeed. But, when setting goals, make sure they’re realistic! Setting unrealistic and unachievable goals won’t benefit you, rather they will make you feel bad for not being able to meet them.

If you’re concerned about the increased cost of living, then you’re unlikely to be able to save a million dollars in the next year. Instead, look at your personal finances and see how much you’d be able to put aside into savings each week. Whether you can set aside $150 or $15, any saving goal will help you build a nice nest egg which will continue to grow. As your financial situation changes, make sure your goals also change!

Goals don’t have to be purely financial either, if you’re a chronic spender on your credit card then you may want to set up some lifestyle goals. Whether it be to cook at least two vegetarian dishes a week, or to begin taking public transport to and from work, these lifestyle goals can have a positive impact on your personal finances.

Don’t be afraid to ask for help

Finally, it’s good to be able to recognise that not all financial problems can be solved by skipping take-out night. Sometimes you will require the help of a financial expert, especially if you’re struggling with unmanageable debt. Reaching out for help is not something to be embarrassed about, rather it is a brave first step in taking control of your finances.

To help get you on the right track, make use of our free debt assessment tool and contact us for an obligation free assessment. We are also happy to answer any questions you may have about the services we can provide you. And, while you’re here, browse our other articles for more information and tips about budgeting and tackling debt.