Inflation is creating uncertainty across the world. Everyday we are seeing surge in prices. US inflation has reached its highest point in nearly 40 years, same with UK. In India, we are seeing a huge spike in the inflation rate and Government trying hard to curtail the surge by putting a ban on exports for essential food items.
Globally, the situation is quite similar as most countries are facing increase in the cost of food, oil and other essential goods.
So, firstly let’s understand
What is Inflation?
To explain it in simple terms, inflation is the rate of increase in the general price level of any economic system. Inflation is the quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a goods and services in an economy over some period of time.
What are the reasons for the current inflation?
There are broadly two reasons which is causing inflation globally. One is on the supply side the prices of commodities such as food and fuel are increasing due to global conditions caused due to the Covid 19 pandemic. Reserves are getting depleted. There is shortage of coal in Asia, natural gas shortage in Europe and a shortage of petrol across the globe which is contributing to the increased costs.
Another reason is on the demand side, global economy is flush with cash. Cash stimulus was given to fuel the economy during lockdowns and many household had excess cash to spend. Due to this imbalance is supply and demand factors the prices of such resources have increased.
To sustain ourselves during the rising era of inflation, every household needs to take immediate measures to reduce expenses.
Inflation is creating uncertainty across the world. Everyday we are seeing surge in prices. US inflation has reached its highest point in nearly 40 years, same with UK.
How to reduce expenses in an era of inflation
Make a budget:
The very first step and the most effective one to keep costs from increasing is to make a budget. It is important to have a spending plan, this will ensure that you are aware of what you are spending on and is it need based or just a frivolous expense.
You need to have a budget for things which are directly affected due to inflation such as food, petrol, clothing and housing. At the beginning of every month, budgeting should be done for all the essential items you will require. This is help you understand the expenses you can avoid and also stop you from using up money from your savings.
Cut unnecessary expenses :
Simple cost cutting measures can help combat rising prices. Currently the prices of petrol and diesel have sky rocketed. In such a scenario you can cut down costs by car pooling or taking public transport while commuting. Also, you can start working out at home instead of at the gym and reduce your gym expenses. If you dine out, once every week , reduce it to every two weeks. Instead of watching movies every week at a multiplex, watch at home on the OTT platforms. Such measures can bring down your expenses considerably.
Prioritise and find cheaper alternatives :
Prioritise your needs and spend accordingly. Do not buy everything on credit cards. Also look for cheaper alternatives by being creative in your purchases. Keep looking for online deals and deals available at new stores while purchasing essential items as well. Try less expensive branded foods, cleaning products, hair products.
Pay off credit card bills:
Do not accumulate debt. Pay your credit card bills regularly. And by that I mean your entire credit card bill amount and not only minimum payments on it. This should be something you do not put off till the end of the month, rather pay off all the debt the beginning of the month itself.
Maintain enough liquidity for a rainy day:
When prices increases, many people start making investments to keep pace with the rising inflation. However, during inflation the situation is quite volatile and thus it is advised to set aside enough cash to overcome any financial emergency.
Hope this information helps you to manage your expenses. It was imperative to manage your debts well in current scenario.