Unpacking the
great price hike

How to set up an inflation-proof budget?

When it comes to the rising cost of living, a big issue is that price hikes have been concentrated in non-discretionary items such as food, fuel, housing and healthcare.

Inflation on these goods and services are 7.6 per cent higher, compared to 4 per cent higher for discretionary items.

So, while you might be able to cut down on eating out, limiting your subscriptions or giving up holidays, you can't switch off your energy, stop pumping fuel into your car or give up your home.

What you can do, though, is make sure you’re not paying any more than you have to on your ‘non-discretionary’ household bills.

Take the time to review your household bills because, collectively, they can make a huge difference to your overall personal inflation rate.

Can you cut costs?

Chances are there are a handful of regular bills that are wolfing down your pay packet. This is where you need to take a good look at whether you can get a better deal, or maybe give a particular service the flick altogether.

Were you guilty of adding on a few too many streaming services during lockdown? If yes, now may be the time to give a few the flick.

There are so many simple steps you can take to reduce your expenses. Big-ticket items like your home loan are where the big savings are, but even small savings can add up.

According to Canstar’s cost-of-living tool, you could be saving around $11,000 per year by simply swapping your regular household bills to either the cheapest in the market or the best-valued.

Can you earn more?

Don’t neglect the other side of the ledger – your income. When it comes to making extra cash, the share economy offers plenty of opportunities.

Whether you decide to rent out your spare room, share your car, pet-sit or sell some items around the home, you can boost the money coming in.

According to Gumtree’s 2022 Trading in the Circular Economy Report, Aussies stand to make about $6964 per household from their unwanted items. The report reveals 86 per cent of Australians have unwanted and unused items they could sell, with around 21 items per household.

Set your formula

Once you’ve gone through your regular bills, it pays to take a look at your budget. There’s no shortage of budget formulas to help you manage your budget. A popular option is the 70:20:10 plan. Here’s how it works.

Step 1

Divide your money between:

• 70 per cent for everyday-living costs (rent or home loan, transport, clothing, food and utilities)
• 20 per cent for saving (don’t skimp on savings)
• 10 per cent for splurging.

Step 2

Set up some buckets. Instead of lumping your ‘everyday-living’ expenses into a single bucket, open multiple buckets (accounts) and give each of them a nickname. You might have one account for school fees, another for household bills and so on. The same goes for savings. The 20 per cent can be further broken down between savings buckets – 5 per cent can go to your rainy-day bucket, 10 per cent to your holiday bucket and 5 per cent to the ‘get-ahead’ bucket.

Using buckets within buckets makes it easier to achieve multiple goals. You can allocate a set sum to each bucket, track your progress and fine-tune your budget for each target.

What if you’re living from pay to pay?

If you want to escape the vicious cycle of living from pay to pay, then you need to switch to a bare-bones budget.

A bare-bones budget takes out non-essential items, such as subscriptions, entertainment, personal care – like manicures and holidays – and focuses on just the essentials, like food, clothing and shelter.

Bare-bones budgets are not fun to live on, but the good news is you only need to do this for a few months. During this time, be sure to direct the savings you make from omitting non-essential items into an emergency fund. Once you build off this buffer of savings you can then revert to your normal budget.

^{Image: Editor-at-Large at Canstar.com.au, Today Show money expert and UQ alum Effie Zahos.}