Inflation makes basic housing, energy, food, and transportation costs more expensive and causes economic stress for most people. Economic stress can make money management more difficult and unpredictable. If you are finding it challenging to pay your monthly bills or pay off your credit card balance in full each month, it is time to create a strategy to cut costs wherever you can.

Make a List: The first step to any cost cutting strategy begins with a budget. A budget is nothing more than a list of all your expenses and all your sources of income for a certain period of time, such as a month or a year. The process of making a budget is difficult—not only because it is time consuming to think of all the ways you spend money—but because for many people it is a painful admission of how they waste money or make poor financial decisions.

Create Expense Categories: Once you complete your budget, separate your expenses into three categories: fixed monthly expenses, expenses that vary from month to month, and discretionary or optional monthly expenses. A fixed expense is something you must pay each month. Your monthly rent or mortgage payment, car payment or cell phone bill are all fixed expenses. Expenses that can vary each month include groceries, gas, heating and electricity, and clothing. Discretionary or optional monthly expenses might include movie rentals, gifts, eating out, clothing, health club memberships and paying yourself first. (See, Countdown to the New Year – 5 Easy Steps to Managing Inflation, Week Number 5: Pay Yourself First)

Next comes the hard work. After you finish listing all your expenses and sources of income, compare their respective totals. If the amount of money you spend each month is higher than the amount of money you bring in each month, inflation is winning. But if your income is higher than the total amount of money you spend each month, you are to some extent winning the fight against inflation or at least holding your own.  Regardless of which scenario best describes your financial situation, closely examine each item on your list to determine if you can reduce the expense or eliminate it completely.

Identify Fixed Expenses: A fixed expense is an expense you have agreed to pay and may come with a severe penalty should you decide to not pay it. For example, failure to pay rent on time can lead to eviction. Failure to make your car or utility bill payment can lead to repossession or the discontinuation of services. Nonpayment or late payment of a fixed expense can also lead to a lower credit score which can in turn hurt your ability to borrow money in the future.

Consider how you can either pay off these expenses entirely or reduce their amount. If that is not possible, make sure you do your best to make the payments on time. Shop around for better prices on everything from garbage pick up to cable and internet. You may even consider looking for housing that comes with a lower price tag. The important thing is for you to think about each of your fixed expenses and identify how you could reduce the amount you spend on these expenses each month.

Identify Varying Expenses: A varying expense is an expense that changes from month to month. During periods of high inflation these are the expenses that make money management very difficult. There are ways you can reduce the amount you spend on varying expenses each month.

First, identify all your varying expenses. Check your list to see if you can eliminate any of them from the list. Then consider if the reason the expense varies is because of need or because of want. The cost of gas, food, clothing, and utilities are items you need and are outside your control. But items you want are within your control. Consider taking advantage of services, such as gas cards, store points programs and the like.

Discretionary or Optional Expenses: You can lower the amount you spend on the things you want by simply saying no to the purchase or buying less. Make a list of what you need and stick to it. Use a service that selects your items for you to pick up at the drive through. This keeps you out of the store and prevents you from making impulse purchases. Buy generic items over name brand items and avoid buying goods and services that are trendy, easy to make or do yourself, or likely to break, tear or come apart in short order.

Most importantly, consider your budget a path to financial freedom rather than a burden. Thoughtful, intentional money management is important in times of economic stability and a lifeline in times of inflation.

Happy Holidays to All!