Tips to Manage Finances During Inflationary Periods


Few things put a damper on personal finances like inflation. When gas, groceries, and other products and services cost more than they did a short time ago, households have less money to achieve long-term financial goals. While Federal Reserve policymakers informally shoot for a stable 2% annual inflation rate, a sharp uptick like the one experienced recently (8.6% in May 2022) can send your finances in a tailspin.

Follow these tips to help manage your finances during high inflationary periods.

Create a Budget

If you’re not already tracking your income and expenses monthly, it’s time to create a budget. The quickest way to get spending under control is to learn where your money is going. It’s one thing to realize you’re paying more at the pump and at checkout — it’s another to know exactly how much.

Subtract your last full months’ worth of expenses from your income to determine how price increases affect your financial situation. When you have a clear picture of how inflation restricts your household budget, you’ll be in a better position to decide the best next steps for your situation.

Trim Expenses

Use your updated budget to help decide which spending categories should be eliminated or reduced to free up cash for other items. For instance, you might start by looking at recurring expenses like mobile services, internet, and cable. Decide whether these expenses are worth the value you’re getting from them.

After reducing unnecessary expenses, explore ways to save on necessary purchases like food and gas. Download grocery coupon apps to save money at the register. You can also use mobile apps to locate low gas prices in your area. Use the newfound savings to:

Pay off debt. Consider debt consolidation. When you consolidate your debts, you use a new loan to pay off older debts. A new loan with a lower interest rate could result in a smaller monthly debt payment and a faster pay off.

Grow your savings. If you’re debt-free, deposit the savings in a rainy day fund account. Set an initial savings target of $1,000 so you’ll have the cash to cover financial surprises.

Diversify Your Investments

Spreading your savings across multiple investment vehicles could help you keep pace with inflation. The U.S. Treasury Department issues government-backed bonds that can earn higher yields or dividends compared to traditional savings accounts. They are an attractive option for savers since they provide a guaranteed rate of return. Bond investment details vary. Visit Treasury Direct® for more information.

Increase Your Income

Overcome soaring prices by increasing your household income. Most inflationary challenges persist when there’s not enough cash to cover basic expenses. Explore ways to earn more money. Options might include working additional hours for your current employer, taking a second job, starting a side hustle, or selling unwanted items.

Ground your finances by taking a deep breath and assessing your situation. When you have a plan, you’re more likely to remain calm despite changing economic conditions. Schedule a no-cost, no-obligation consultation with an LPL Financial Advisor to explore additional ways to protect your money during uncertain economic times.