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5 ways to fight inflation and protect your budget

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It's no secret that steep inflation has put a financial strain on households across the country. As consumers everywhere pay more for goods, services, housing, transportation, and interest fees, it becomes even more difficult to keep essential expenses covered.

Although inflation is a common occurrence in the economy, there’s no denying that it can negatively affect the financial wellbeing of individuals over time, as well as put a serious dent in their purchasing power.

Fortunately, there are some steps you can take to minimize inflation’s impact on your household’s finances and help protect your budget from the rising cost of, well, virtually everything. Here’s where to get started.

1. Maintain a budget

Creating and maintaining a budget is essential for combating inflation’s impact on your household’s finances. Analyze your monthly expenses and separate them into essential and non-essential categories. Prioritizing essential expenses, such as housing, food, and utilities, will help ensure that you have the necessary resources to meet critical needs. 

While this may mean having to dial back on some of the non-essential expenses you’ve become accustomed to enjoying (more on that later), it nevertheless helps to ensure that the money you have in hand is going to the right place.

In addition to helping you track your expenses, responsible budgeting can help you set financial goals for the future, find long-term savings opportunities, and reduce overall expenses, potentially putting you in better financial standing when inflation starts to return to more manageable levels.

2. Build up your savings

Building up your savings is another way to help protect your finances during inflation. Having a cushion for unexpected expenses or emergencies can help safeguard your household’s financial wellbeing during tough economic times. 

An emergency fund is just that—a way to prepare for emergency expenses that appear out of thin air. Emergency funds exist to help keep your financial health in good standing and reduce  stress about external factors that you can’t control, like inflation.

Not to mention, the more you have in savings, the more you can earn on the money you’ve stashed away. Need some help reaching your savings goals faster? A high yield Varo Savings Account offers no fees and easy auto-saving tools to help grow your money.

3. Minimize unnecessary spending

Remember what we said about cutting back on the non-essentials? Saving money by eliminating unnecessary expenses or luxuries is a great way to combat the rising cost of goods and services. This could mean buying generic rather than name-brand products, planning ahead for cheaper vacations, cooking at home instead of dining out, or finding other creative ways for you and your family to enjoy themselves without splurging.

While spending on essentials like groceries, gas, and utilities is much more difficult to cut back on, incorporating simple money-saving tips in your day-to-day routine can help lessen the burden of a rising cost of living.

While you’re at it, why not cut down on unnecessary bank and savings account fees? Varo’s online bank account and no-fee savings account are both great ways to skip the often high fees that most traditional banks charge for the basics.

4. Manage your debt

Inflation can make it all the more difficult to manage your debt as prices rise and the value of money decreases. The real cost of borrowing increases when inflation skyrockets, and without the right approach, some may find themselves struggling to keep up with debt repayments.

Consider prioritizing high-interest debt repayment to help you reduce overall debt both when inflation is high and when it subsides. Focus on paying off high-interest debts first, such as credit card debt, before tackling your other debts.

If you have outstanding loans or credit cards, consider refinancing if possible to lower your interest rates, as it can help reduce the overall cost of borrowing. Although interest rates are generally higher during inflation, you may still be able to get a lower rate if your credit is in good standing. Or, explore other innovative refinancing strategies that can help you save money on interest payments.

During inflation, it's also wise to avoid taking on new debt as much as possible in order to reduce your overall debt burden. This means avoiding using credit cards for purchases, making cash payments instead, and staying within your budget’s spending limits to reduce the amount of new debt you incur.

5. Invest in your future 

Investing in multiple assets with different risk levels is another way to fight inflation by earning returns that outpace inflation rates. By diversifying your financial portfolio, you can spread your risk and reduce your exposure to any single asset.

Likewise, invest in assets that increase in value over time, like real estate property or stocks, rather than expensive assets that depreciate in value quickly, such as cars. Appreciating assets' value has the potential to grow faster than inflation, which can help you maintain your purchasing power.

Thinking about putting some of your money into stocks? While it comes with a degree of risk, investing in stocks can be a great way to build long-term wealth and make your money work for you.

Taking the necessary steps to combat inflation while protecting your money is vital for your financial wellbeing. By maintaining your budget, building your savings and investments, minimizing non-essential expenses, and creating a plan for your future, you can better safeguard yourself from the negative impact of inflationary pressures and help ensure your long-term financial security.

Unless otherwise noted above, opinions, advice, services, or other information or content expressed or contributed by customers or non-Varo contributors do not necessarily state or reflect those of Varo Bank, N.A. Member FDIC (“Bank”). Bank is not responsible for the accuracy of any content provided by author(s) or contributor(s) other than Varo.

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