Beat Inflation: Tips to Maintain Your Household Budget Amid Price Hikes
By: Venus Zoleta
Published on: May 29, 2018 . Last updated: September 23, 2020 Category: Personal Finance
You’ve probably heard about it lately: the inflation rate in the Philippines has been going up. Even if you don’t follow the news, you definitely feel its impact on your finances.
What does a high inflation rate mean? What can you do to minimize its effects? Read on to find out more.
Table of Contents
- What is Inflation and How Does It Affect You?
- What are the Causes of Inflation?
- 6 Tips to Reduce the Impact of Inflation on Your Budget
- Final Thoughts
What is Inflation and How Does It Affect You?
Inflation is the rate at which prices of basic goods and services are increasing, which decreases the purchasing power of peso. A high inflation rate means you pay higher prices for anything you purchase.
If you don’t manage your household budget well and ahead of time, these price spikes can quickly drain your income.
What are the Causes of Inflation?
Inflation rose to 4.5% in April 2018, surpassing the government’s inflation target for the year. While many believe the tax reform or TRAIN law implemented in early 2018 pushed the inflation up, the government thinks otherwise.
According to Socioeconomic Planning Secretary Ernesto Pernia, the TRAIN law has only a minimal effect on the latest inflation rate increase. Instead, he cited the depreciation of peso and oil price hikes in the world market as the major causes of inflation.
6 Tips to Reduce the Impact of Inflation on Your Budget
With prices of basic commodities continuing to rise, how far can your income go for your family’s needs? How can you stop inflation from hurting your budget?
Here are some practical tips for people who are running their household’s budget.
1. Avoid Lifestyle Inflation
Got a raise or a higher-paying job lately? That doesn’t mean your budget is inflation-proof.
It can be tempting to upgrade your lifestyle and raise your household spending with your increased income. Yes, you may afford it now, but the recent price hikes will ruin your budget over time.
Live below your means. Whether you’re earning a high income or not, it’s still better to keep a frugal lifestyle.
2. Maintain a Tight Budget
Everyone in the household must stick to a budget that clearly defines the priorities and limits on spending for each area (e.g., food, groceries, entertainment, fuel, etc.).
While the household budget should be rigid in terms of allocation for savings, investments, and debt payments, it can be flexible for other spending categories. Adjusting the amount to spend for certain categories is especially necessary during inflation when prices go up.
Prices of food and utilities, in particular, have increased following the TRAIN law implementation. Adjust your household budget either by allotting more funds for these expenses or controlling the cost. The right choice depends on whether your income can cover these basic necessities or not.
If you opt to cut the costs of feeding your family, you need to carefully plan your food budget, daily menu, grocery shopping, and cooking. The Food and Nutrition Research Institute has some helpful tips for families that plan to stick to their food budget.
Also, make it a group effort in the family to lower your water and electricity bill to keep your utility expenses to a minimum.
3. Eliminate Unnecessary Expenses
Review your budget and see which expenses you can let go or cut down. Do you drive your car to work every day? Consider carpooling to save on fuel costs. Does your family often consume soda and alcohol? Time to cut back on these beverages.
There are many other ways a family can save money when prices keep on rising. For example, if your budget has no room for your family to travel or even watch a movie in malls every weekend, plan a staycation like a movie marathon or a game night. It’s a lot cheaper family bonding activity.
4. Have a Contingency Plan in Your Budget
Because of the price hikes, it’s easier to exhaust your income to cover all your household expenses rather than set aside money for contingencies.
Keep building your emergency fund no matter what happens so that when prices of goods continue to increase, your budget won’t be affected as much. Aim to save 10% of your total budget for your family’s emergency fund. You’ll definitely need that for the bad financial times.
5. Track Your Expenses vs. Current Prices
It isn’t enough that you set a family budget—you have to monitor it regularly so that you know if you’re on track.
Know how much money is coming in and going out. Compile and check all your billing statements, bank statements, receipts, payslips, and other income documents. If, for instance, you found out that you’re spending way too much on gas, you can immediately plan on how to cut back on your fuel expenses.
6. Keep on Investing
The rising inflation rate isn’t an excuse to forego your investments. In fact, you need to invest more because it will help you beat inflation in the long term. Make your investments a fixed and permanent part of your household budget.
In times of inflation, stay focused on sticking to your household budget. Always keep your priorities in mind. This way, you can keep your family’s finances in great shape despite the price increases.
Venus is the Head of Content at Moneymax, with 15+ years of experience in digital marketing, corporate communications, PR, and journalism. She invests in stocks, mutual funds, VUL, and Pag-IBIG MP2. Outside of work, she’s crazy about cats and Korean dramas. Follow Venus on LinkedIn.