So you can rethink your budget to combat rising inflation

Carmen Reinicke -

Americans are feeling the pinch of rising inflation, which doesn't look like it's going to let up anytime soon.

For many, that means now is a good time to review the family budget.

The consumer price index rose 7.5% in January, the US Department of Labor released on Thursday.

This is the highest reading of the inflation indicator since February 1982.

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Nearly every category measured by the index increased month over month, and all were higher than a year ago.

Energy costs, food prices and used cars and trucks saw some of the biggest increases.

“It's very important to review your budget and how you spend your money,” suggested Greg Giardino, a certified financial planner and financial advisor at JM Franklin & Company in Tarrytown, New York.

He added that spending too much now could lead to bad habits later.

Here's what financial experts recommend Americans keep in mind when rethinking their budgets.

check prices

Rising prices mean the budgets Americans have had for the past year and a half probably won't work anymore, according to Christopher Owens, CFP, a senior associate advisor at Wealthspire Advisors in Potomac, Maryland.

But, since inflation hits consumer prices differently, each person will have to analyze their own expenses to readjust their budget.

For example, if you don't plan to buy a used car or truck anytime soon, he'll keep prices from rising 40% in the year.

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Even so, it is likely to be affected by other rising costs, such as the increase in the price of the shopping basket and in restaurants and energy.

Take a look at what you've been spending in those categories and reallocate the amounts of money that make sense.

This is especially important for people who plan to travel in the future, according to Owens, as budgeting for travel has become more complicated.

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"It's important to take that extra step: how much is it going to cost to go out to dinner?" he said.

As inflation continues to push prices higher, Owens advises consumers to keep a close eye on spending in categories where costs rise over the coming months and years, especially if they are actively traveling.

“It is likely to be more volatile overall.

It would be great to keep an eye on spending, probably quarterly, just for general home maintenance,” he suggested.

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If you've been overspending because of inflation, you may also need to cut back, said Tania Brown, an Atlanta-based certified financial planner and founder of FinanciallyConfidentMom.com.

That could be as simple as buying less meat or

.

It can also mean cutting out things that aren't important to you, like certain subscription services.

Establish a new normal

Americans have had to make many changes since the pandemic began, including learning to work remotely and complying with new rules and regulations.

As the pandemic continues, it's important for people to reassess their priorities to make sure they're spending on the things that are most important to them.

This is especially true when inflation erodes purchasing power.

“What do you want that new normal to look like for you?” said certified financial planner Tess Zigo, a financial advisor at Emerge Wealth Strategies in Lisle, Illinois.

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Zigo recommends that people sit down and think about their main financial values ​​and where their money is going.

Next, they must analyze their expenses and see if they fit within those values.

A woman shops for tomatoes at a supermarket in Glendale, California, on January 12, 2022. Robyn Beck / AFP via Getty Images

Also, many people's expenses and incomes have changed in the last year, which makes it very important to reevaluate the budget.

Even those hardest hit by the pandemic can and should do a similar budget exercise, says Giardino of JM Franklin & Company.

He recommends starting with take-home pay and allocating 50% to living and utility expenses, 30% to leisure and travel, and 20% to savings, if possible.

He also said that people should always budget in the way that works best for them, whether that's using cash, any expense-tracking app, or simply using a credit card.

Boost savings

Financial experts also recommend setting aside a portion of your budget for savings, if possible.

Of course, this may be difficult for some Americans as they are dealing with higher prices.

A recent survey revealed that 56% of Americans could not cover a $1,000 emergency expense with their savings.

Still, if you're reviewing your budget, see if you can set aside a small amount each month to start building an emergency fund.

Even putting $5 into such an account each month starts you on your way to better financial habits in the future.

“Once you have that safety net, you've earned the right to invest more or pay more debt,” says Giardino.

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