When food prices started to increase, Mara Derderian ’93 had an important decision to make: Where should she go grocery shopping? The Bryant Finance lecturer and Financial Planning Program director chose to be more selective in where she shopped for everyday items and started going to big-box stores and low-cost retailers.
Derderian is one of the many Americans who are feeling the continuous impact of inflation and adjusting their spending habits. According to the U.S. Bureau of Labor Statistics’ Consumer Price Index from March 2022 through this past March, prices are up approximately 5 percent. Prior to the pandemic, from February 2019 to February 2020, the Consumer Price Index for All Urban Consumers rose 2.3 percent.
When looking for areas to save, Derderian says individuals must first establish a budget and set goals. She adds that the 50-30-20 rule is a tried-and-true budgeting method where 50 percent of a person’s paycheck goes to fixed needs, 30 percent goes to variable expenses, and 20 percent goes to savings.
“This is a good guideline, but in certain times — whether it's personal or economic-based — you need to be able to amend those percentages,” Derderian advises.
Budgeting apps help individuals create a budget and develop a discipline, so they stick to it. Derderian suggests finding an app that has enough variables to address a person's needs. According to Forbes, Empower, Mint, and YNAB are some of the best budgeting tools as of April 2023. For those who aren’t tech savvy, recording a budget on a spreadsheet or piece of paper works just as well; this method might be more eye-opening for people since they run the numbers themselves.
Individuals looking to stretch their personal budget should consider the following:
• Resort to cash: Derderian groups herself with those who rarely carry cash because of electronic payment methods like Venmo and Zelle. While technology has its benefits for ease, people may start spending more than they realize, says Derderian. If individuals have to take out cash and count it, they get a better sense of what they are spending.
• Keep an eye on subscriptions: People often forget about subscriptions (streaming services, magazines, gym memberships, etc.) until the fees show up on their credit card bill. These recurring costs add up and should be reevaluated for necessity or for cheaper plans, says Derderian.
• Avoid fee income: A quick way to save money is to reduce fee income. Banks and credit card companies may fine customers if they do not have a minimum bank account balance, bounced a check, or didn’t fully pay a credit card bill. Regularly tracking this information will help ensure people are not paying for it later.
• Take advantage of cash back rewards: Many credit card companies incentivize customers through cash back rewards. Cards may allow users to receive a percentage of money back from buying groceries and gas or allow individuals to redeem gift cards or use toward paying down a credit card bill.
Budget check-ins should be done monthly so spending doesn’t get away from people; it’s safer to avoid a problem as opposed to rectifying one. A person’s budget may change over time depending on circumstances and needs, says Derderian.
Considerations such as buying your first home, paying for a child's college, or planning for retirement may influence budget choices.
“I think things in life can be here before you know it, so you should start planning and understanding what you want. The more time you have to meet that goal, the stronger the probability is you will meet it,” Derderian says.
In some instances, individuals may want to consult a financial advisor when calculating complex financial situations.
“When you start to see progress [sticking to your budget], you’re motivated to keep going,” Derderian says. “But you’ve got to give it time to see it grow.”