Especially in a time of tighter budgets, it’s important to plan ahead and figure out how much you can comfortably save from each paycheck — then put that amount into savings from the outset.
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While inflation is at the highest it’s been since the early 1980s, many people — especially those living paycheck to paycheck — may be struggling to save any money at all.
Inflation is likely to remain high, with most economists polled in Bankrate’s Second-Quarter Economic Indicator survey predicting inflation will remain as expected or heat up even faster. With consumer prices sky-high, inflation continues to outpace wage growth and savings rates, making it difficult for Americans to find room for saving.
Still, it’s important to save — or avoid spending what savings you have — especially with the potential for a recession. Until the beast of inflation is tamed, there are some strategies you can take to soften its blow on your finances, protect savings and develop better financial health overall.
1. Budget for savings first
Often it can be easy to spend your income and then run out of money for savings before you’ve even realized it. That’s why it’s important to plan ahead and figure out how much you can comfortably save from each paycheck — then put that amount into savings from the outset.
“If you put that savings first, you can find a way to live within the bounds you set for yourself,” says Sam Lewis, founder and financial planner at SJL Financial in Wilmington, Delaware.
The amount you should save depends on a couple of variables, including your total income, household size and what savings goals you have. A common budgeting strategy is the 50/30/20 rule — 50 percent of your income goes to needs, 30 percent to wants and 20 percent to savings.
However, it may not be realistic for many, especially those living paycheck to paycheck, to stow away 20 percent of their income. What’s important is trying to cut down on expenses and outline a plan to contribute some money at the beginning of the month to a savings account, with the goal of not tapping into that savings for daily spending.
2. Set spending priorities, focus on paying down debt
Once you’ve set aside a certain portion of your budget to build a decent savings cushion, consider what might be the best way to allocate spending — looking out for where spending could be trimmed. Being more aware of your spending can help to eliminate impulse purchases.
A good strategy is to prioritize paying down credit card debt or other types of consumer debt. If you get out of debt sooner, you can save more in the long run, by limiting the amount of interest accumulated. Plus, in a rising rate environment, what you’re saving on future debt payments could be more than the rate you’d get from a savings account.
“If you have any credit card or other personal debt, you will most likely get a better return by paying down the debt than putting the money in savings,” says Jay Zigmont, PhD, CFP, founder of Childfree Wealth, a financial planning firm based in Water Valley, Mississippi.
For credit card debt, consider moving your balance to a balance transfer credit card, which may come with an introductory period of no interest charges for a year or more.
3. Cut back on energy bills
Two areas facing the highest rates of inflation are food and energy.
The high costs of utilities like water and electricity can chip away at potential savings. You can save on energy, especially during the hotter months, with a few simple lifestyle changes. Plus, doing so helps reduce the overall consumption of limited resources and contributes to building a greener nation.
The U.S. Department of Energy offers a guide with numerous tips for reducing utility bills. Here are several of those pointers:
Save up to 10 percent on heating and cooling by turning the thermostat down seven to 10 degrees Fahrenheit for eight hours a day during the fall and winter, or turning it up during spring and summer.
If you have access to your water tank, insulating it can save 7 to 16 percent annually in water heating costs.
Put scraped dishes in the dishwasher instead of hand washing them, and only run the dishwasher when it’s full.
Cover and wrap foods in the refrigerator to prevent moisture from being released, which can reduce how much energy is needed by the refrigerator’s compressor.
Use small appliances (such as microwaves and toaster ovens) for small meals, rather than a large stove or oven, which can save on cooling costs during the summer by generating less heat.
4. Shop for cheaper alternatives
When it comes to high costs, it’s probably apparent that grocery prices have faced some of the biggest price increases. The price of eggs rose by 33.1 percent in June compared to a year ago, with other essentials like butter and milk not far behind.
As you shop for groceries or home goods, compare brands and see if there’s a cheaper option. Look for store brand items, which are often significantly cheaper than other brands, and shop for local sellers of produce.
Also consider substituting certain ingredients with other, cheaper alternatives. For example, you could use oil instead of butter for cooking.
5. Consider a side gig
The reality is that we can’t completely stop ourselves from making purchases that aren’t totally necessary. But it’s possible to offset these costs by putting in a little extra effort to pay for them.
“If you are in a cautionary mode about spending and saving, but you still want something that’s unnecessary — you can do that once you earn enough money from a side gig,” Lewis says.
Some of the ways you can make some extra cash on your own time include:
• House-sitting or babysitting
• Dog-walking
• Filling out paid surveys, such as with Survey Junkie
• Reselling your clothes online, such as with Depop or Poshmark
• Teaching English to children in different countries with programs such as VIPKid (you don’t even need to speak another language)
• Freelance writing
