One of the most difficult parts of creating any budget, is building one that’s going to be resilient to changing conditions. When inflation runs hotter, as we’re in the midst of, having any kind of consistency month to month becomes really hard.
It isn’t really practical to keep up with every single detail, and to rewrite your budget every month. It’s much more likely that you’ll get frustrated and stop paying attention to your money. Which is the worst outcome.
Rather then get frustrated and give up, it’s much better to make sure your budget has some tolerance in it. Tolerance means giving yourself some wiggle room. Overestimate your budget for necessities, things like groceries, fuel costs, and vehicle maintenance, these are costs that are constant, and you’re going to have limited ability to put them off, you have to eat after all.
When inflation rates are low, a 1 or 2% increase on a budget item that is 6% of your budget, isn’t going to make a big difference, just based on rounding and some assumptions you’re likely going to have enough tolerance in your budget to stay in the clear.
We’re coming out of a time when budgeting followed a predictable pattern, prices didn’t change that frequently, and they didn’t rise unpredictably, as these conditions persist you need to adapt to them or you’re going to feel your wallet get pinched.
The same example as above but at 8% inflation means that unless your income is keeping pace, within a year your necessities can start increasing as full percentage points of your total budget. Which is going to squeeze out other spending pretty quick. Give yourself an extra 10-15% of what you think you’ll spend on these spending categories for extra comfort,
Inflationary times can be scary, but they don’t have to be stressful. When you go through your budget, over-estimate your necessary spending, give yourself some room, if you find you’ve over compensated and you have too much money left over, then that’s some bonus fun money, and a much better alternative to not having enough.
Budgets are meant to bring you comfort and confidence and shouldn’t be a chore, building in some extra wiggle room will make sure your budget does the heavy lifting during these periods, and you don’t have to worry.