How to budget for inflation

The cost of daily goods has been rising over the past few years — increasing the price of food, gas, clothing, and many other essential items that Canadians need in their day-to-day lives. According to the Bank of Canada’s Inflation Calculator, costs have increased by 15 percent from 2020 to 2023. This means that an item that used to be $1.00 is now going to cost $1.15 in today’s marketplace.

If your income has not increased by 15 percent in the same period of time, you may be feeling the pinch of inflation on your budget. Let’s take a step back to revisit your budget to make sure your monthly income is covering your monthly expenses.

What steps can I take to budget for inflation?

The first step toward managing the impact of inflation on your budget is to sit down and review your monthly household income and expenses. You may prefer to use a pen and paper or create a spreadsheet on your tablet or laptop. It helps to have the numbers in front of you — no matter which method you choose.

List your monthly costs line by line, with your expenses on one side and receipts on the other. After you have listed your expenses, group them into similar categories — for example, you may create a transportation category that includes expenses such as gas or car maintenance.

After you have categorized your expenses, tally up your costs to determine if your budget is balanced. Your budget is balanced if your monthly income exceeds or covers your monthly expenses. If your budget is not balanced, we’ve summarized the steps you can take to help manage the impact of inflation on your finances:

Trim discretionary costs

Review your monthly expenses to determine what is discretionary and non-discretionary. Non-discretionary costs include essential items that you can’t live without — such as utilities or rent payments. These types of expenses are typically more difficult to control.

Discretionary costs are more flexible — these include non-essential expenses such as entertainment or dining out. Trim your discretionary costs to free up more room in your budget. While it may take a lot of willpower to scale back, it is important to ensure your budget is balanced at the end of the month to avoid taking on debt.

Shop around

Comparison shopping may help you cut back on both your discretionary and non-discretionary expenses. Food is essential — however, some grocery stores may offer the items you are looking for at a lower price than others. You may also be able to find sales where you can buy discretionary items at a lower cost.

Don’t be afraid to reach out to ask your friends and family for details about where they shop. They may be willing to share information about sales or stores offering lower prices than competitors.

Prioritize your spending

It is important to prioritize where you spend your income during periods of high inflation to ensure your budget balances out at the end of each month. If you have a loan that you are close to paying off, consider making a short-term sacrifice and trimming the amount you spend on non-essential items to pay it off completely. Once your loan is paid, you will have more space in your budget and can add back the little things you gave up in the short term.

Additionally, always be aware of what items you must have versus items that are nice to have — but not essential. Push back your spending on these nice-to-have items until the end of each month and only purchase those items if there is room in your budget.

Get the right advice

It’s important to manage your expenses during periods of high inflation to avoid relying on debt. Trimming your discretionary expenses, shopping around for lower prices, and prioritizing your spending can all help make sure your budget balances at the end of each month. However, many Canadians are still struggling to cover daily costs as the price of essential goods increases.

Contact a professional if you are feeling overwhelmed by debt or financial stress. Licensed Insolvency Trustees (LITs) can offer the advice you need to work toward a debt-free future. Our LITs would be happy to review your financial situation and discuss your options during a Free Confidential Consultation. Together, we can help you achieve a fresh financial start.