The only 5 strategies you need for smarter spending amid fears of inflation

It’s not exactly news that inflationary pressures in the UK have been rising as the pace of economic recovery from the pandemic steadily slows down. It’s a headline that no one wants to read and I guess moderate inflation is not a bad thing since it can prompt people to spend their cash if they think it will buy less in the future. But high inflation is a monster of its own, and the Bank of England has stated that it expects annual price rises to peak above 4% and stay at the level into the second quarter of 2022. 

We’re all facing a serious squeeze on living standards, not least because the annual rate of inflation rose from 2% in July to 3.2% in August this year (its highest level since 2012) but because we know that UK prices have increased 2.7% in the past six months alone as a result of this. We’re not alone, though: in the U.S, consumer prices increased by 5.4% in September, hitting a 30-year high. 

With the higher UK charges for goods and services dominating the news, some might find themselves falling into a trap of catastrophic thinking. But before you spiral, take heed to this quote:

“A budget is telling your money where to go instead of wondering where it went”. 

I like this quote by Dave Ramsey as it encourages us to take a proactive approach to spending and learn for ourselves what it means to make our money go further. 

On to the first strategy. 

1. Get a true and accurate picture of how you spend your money

Find out exactly where your money goes by saving all your receipts, tracking your purchases via your online bank account or using a money management service that gives you an in-depth breakdown of your spending. For example, MoneyHelper, the body sponsored by the Department for Work and Pensions, offers a Budget Planner with a colourful chart that presents a breakdown of your finances, which can be visually simpler than a list. 

I personally prefer this to manually tracking my expenses because the Planner does all the heavy lifting for me by grouping my spending into categories like household bills, living costs, finance and insurance, family and friends and travel. If your income isn’t steady throughout the year, estimate the annual total and average it per month.

Also, you’ll need to add up your assets, including the amount you have in savings, investment and retirement accounts. Then add up the value of your liabilities, such as credit card balances, student loans, mortgage and car loans. Where your finances currently stand lies in the answer to this equation: assets – liabilities = net worth.

2. A simpler way to save: the 60% Solution

With this budgeting strategy, the first 60% of your gross income (all the money you have coming in for the month) goes to committed expenses, which includes all taxes, housing costs (rent/mortgage, utilities), credit card bills and everything else that you must pay each month. 

The next 30% goes to savings: 20% to long-term savings and 10% to short-term savings, like your emergency fund and a looming big purchase.

The remaining 10% is yours to spend on whatever you want. 

Try it and see the results. Traditionally, with a budget what you’re attempting to do is to prevent overspending. Yet, it’s not often the little luxuries here and there that get you in bind – it’s the larger, irregular expenses like holidays and major repairs. To avoid overspending, the 60% Solution encourages you to do a better job of preparing for those.  

3. Dine out – at home

You don’t always need to eat out to help out when you can eat in and help yourself. Shockingly, it was once reported that the average price of dinner for one person in London stands at a whopping £59.28. If that’s anything to go by, you might be better off cooking for yourself, which has the added benefit of tracking the nutritional intake of your meals.

4. Rethink your spending

One thing to try is cutting at least one recurring expense and saving what you would have spent. If you commute, consider taking the bus to cut down on the cost of petrol. 

You may not need three streaming services, so you can reduce it to one. Put that extra money in a special account for new splurges or spending priorities. 

5. Finally, put your plan in action

For one month, try to budget using my five hand-picked strategies for smarter spending. Once you reach a goal, review your plan and tailor it to fit your next savings goal, giving you the power to purchase what you want while also paying extra attention to how you’re spending your money. 

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