Mastering your money: Budgeting tips for high-inflation times

A high inflationary environment is probably one of the worst economic circumstances for both investors and everyday consumers. While stocks and other asset classes are underperforming, the prices of common items are also having an easy climb. Hard times for the financially prudent and a financial “apocalypse” for the financially loose.

If there is one thing the “money people” keep drumming down the ears of the average man, it’s the need to spend and live within a budget. You must always know exactly what you would spend in a specific period. How else would you manage your finances properly they say?

Rather quickly, the ordinary man would soon find how difficult it is to live within a predefined budget, especially with the rapid fluctuation of prices of everyday items. It’s very uncommon to buy an item from the grocery store some months ago and meet the item at the same price today. This is what inflation means in reality.

What exactly is inflation?

Inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money.

For example, if the YOY inflation is 10%, this means that the value of money a year ago is 10% weaker. In essence, an N100 note from one year ago would be worth N90 today.

In a high-inflation environment, prices of commodities keep rising and the worth of money keeps going lower. This is bad news for the man who lives strictly within his budget. Why? Well, his budget gets outdated quickly. For example, he may budget N10,000 for expenses for the year but because of inflation, he may need N14,000 in reality as prices might have gone up.

He may find himself tweaking his budget every now and then. The exact opposite of what a budget is meant to do; create a tight spending framework that doesn’t change frequently.

What does he do? Should he abandon his budget altogether and spend impulsively as most people do? That may be a faster route to financial ruin than he may have anticipated.

How to budget in a high inflationary environment.

  • Always make room for price disparities:

In a high inflationary environment, you would expect prices to increase and if you want to stay within a budget it is wise to always factor in these differences. For example in Nigeria where our inflation is over 20% you may want to factor this into your expenses. In reality, you may put N12,000 in your budget instead of N10,000 to cater for all these differences.

  • Take advantage of discounts and special sales:

With prices gyrating upwards, every penny matters and one way to stay ahead of the pack is to pounce on opportunities to pay lesser for goods during Black Friday offers or distress sales. Prices of items are considerably cheaper and this may be your best opportunity to grab items at relatively lower prices.

  • Cut off excesses

Follow the magic rule, if you cannot afford something twice or thrice, do not purchase it. Also when prices are skyrocketing it is the best time to do away with some unnecessary expenses. Time to evaluate expenses that can be avoided or replaced with cheaper alternatives. For instance, you may be better off fueling just one car than having to fuel, maintain and look after three cars. It may be better to downgrade to a lower cable TV subscription and free up cash.

  • Seek professional financial help

You may be at your wit’s end in terms of managing your finances especially when you don’t seem to get a grasp on where your money is going. It may not entirely be your fault since the economic climate may be the culprit. This may be more reason why you need professional financial help. A seasoned financial expert to help you make better and more informed decisions to keep you ahead of the lay pack.