How To Budget For Inflation (MNP 3 Minute Debt Break)

2024-05-30  3 minute read

Lifestyle Debt


he cost of daily goods has been rising over the past few years, increasing the price of food, gas, clothing, and other essential items Canadians need. According to the Bank of Canada’s Inflation Calculator, costs have increased by 15 percent from 2020 to 2023. This means an item that used to be $1.00 now costs $1.15. If your income hasn’t increased by 15 percent in the same period, you might be feeling the pinch of inflation on your budget. Now might be a good time to revisit your budget to ensure your monthly income covers your expenses.

Couple budgeting planning with a laptop.

The first step in managing inflation’s impact is to review your household income and expenses. Use a pen and paper or create a spreadsheet on your tablet or laptop to list your monthly costs, with expenses on one side and receipts on the other. Group your expenses into categories, such as transportation, which includes gas and car maintenance. Tally up your costs to determine if your budget is balanced. Your budget is balanced if your monthly income exceeds or covers your expenses. If not, here are steps to help manage inflation’s impact on your finances:

Trim Discretionary Costs:  Review your expenses to determine what is discretionary and non-discretionary. Non-discretionary costs include essential items like utilities or rent payments, which are harder to control. Discretionary costs are more flexible and include non-essential expenses like entertainment or dining out. Trim discretionary costs to free up more room in your budget. While scaling back requires willpower, it’s crucial to balance your budget and avoid debt.

Shop Around:  Comparison shopping can help cut back on both discretionary and non-discretionary expenses. Food is essential, but some grocery stores offer lower prices than others. Look for sales to buy items at lower costs. Ask friends and family about where they shop for deals.
Prioritize Your Spending: Prioritize where you spend your income during high inflation to ensure your budget balances each month. If you have a loan nearing payoff, consider making short-term sacrifices by trimming non-essential spending to pay it off. Once paid, you’ll have more budget flexibility. Always differentiate between must-have items and nice-to-have items. Delay purchasing nice-to-have items until the end of the month, buying them only if there’s room in your budget.

Get the Right Advice:  Managing expenses during high inflation is crucial to avoid relying on debt. However, many Canadians still struggle with daily costs as prices rise. If you’re overwhelmed by debt or financial stress, contact a professional like a Licensed Insolvency Trustee from MNP Limited. LITs can offer advice to work toward a debt-free future by reviewing your financial situation and discuss options during a Free Confidential Consultation. Together, we can help you achieve a fresh financial start.

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