Inflation Hurt Your Budget? 9 Ways to Get Back on Track Before the New Year

Now is the right moment to correct course so you do not carry bad money habits into the year ahead.

Your money situation is not something you can simply set up once and forget about. A solid budget and clear financial goals are just the starting point.

That is because life changes. A grocery budget that once worked can quickly fall apart when food prices jump. Higher gas costs can push your commuting category off the rails. Even a pet that seemed inexpensive can become costly after a major health issue requires medication, prescription food and repeated vet visits.

And even if your year has gone smoothly, it is still smart to make sure your finances are in good shape. If they are, that is excellent. If they are not, it is better to catch a small problem now than to let it grow into something bigger.

Taking stock in the fall gives you time to make adjustments before the year ends. It can also help reduce stress as the busy holiday season approaches.

Here are several practical ways to keep your goals on track and protect — or even grow — your money.

1. Refresh your budget

How are your expenses looking? Inflation has hit many budgets hard, so you may have spent more than expected on gas, groceries, internet service, over-the-counter medicine and clothing.

It is time for a financial checkup. Set aside an hour or so to review your spending, savings and progress toward your money goals.

Maybe you planned to put a set amount into your emergency fund every month, but had to skip a few deposits because groceries became too expensive. Or perhaps you now realize the kids’ activities were more expensive than you intended.

Even if you are behind, all is not lost. You still have time to make adjustments and avoid taking those habits into the new year.

Look for money leaks such as bank fees or extra spending on snacks at youth sports events. Start saying no to expenses that are straining your budget, such as too many restaurant meals, subscription services or unnecessary shopping trips.

2. Reevaluate your health insurance

In general, health insurance changes are only possible during open enrollment if you want coverage for the coming year. Have you always let your plan renew automatically through your employer or the Health Insurance Marketplace?

That may not be the best approach. Your current plan could change significantly next year, and a closer look might reveal better coverage or a better price.

Your own needs may have changed, too. You may be planning to start a family, or someone in your household may have developed a health condition. Will your current plan still meet those needs?

Before open enrollment passes, take time to make sure you have the right coverage at the right price. And while you are thinking about health care ...

3. Plan to use your FSA money

If you have money in a flexible spending account, now is the time to use it. You may be able to carry some of it forward or get a little extra time to spend it, but do not rely on that. Instead, make a plan for using those tax-free dollars.

For instance, when was your last dental cleaning? Book it. Maybe a child needs an eye exam. Or if you are expecting and planning to breastfeed, start looking into a breast pump and related supplies.

You can also use FSA funds for health-related items such as contact lens solution, blood sugar test kits, bandages, hearing aid batteries and certain over-the-counter medications.

You earned that money, so do not let it go to waste.

4. Reduce credit card debt

Carrying a credit card balance is rarely a good idea. Sometimes it happens because of unexpected events such as unemployment, divorce or major home repairs. Too often, though, it happens because of impulse spending that becomes hard to pay off when the bill arrives.

Then another emergency hits, like car repairs, and more gets added to the card. Interest builds, and a small balance can become a major problem over time. For example:

• A plumbing emergency forces you to put $2,000 in repairs on a card with a 21% APR.
• You can only afford to pay $40 a month toward the balance.
• By the time the debt is gone, you will have paid nearly $2,800 in interest.

That assumes you do not add anything else to the card in the meantime. Think about what that extra $2,800 could have done for your goals if it had stayed in your pocket instead of going to interest. Stop feeding that cycle.

Begin now, before holiday distractions make it easier to delay.

5. Prepare for higher utility bills

Cold weather is coming, and in many parts of the country that means more time indoors and higher heating costs. Staying comfortable can be rough on a budget.

Air conditioning can be expensive too, but in warmer months there are usually enough mild days to get by with open windows and fans. Winter is not as forgiving.

We cannot control the cost of propane, natural gas or heating oil, but we can reduce how much we use. Do not wait for the first cold snap to hunt for insulation, weather stripping or a furnace tune-up. By then, everyone else will be trying to do the same thing.

A home energy audit is a good place to start. You can hire a professional, or try a do-it-yourself version with guidance from the Department of Energy. Either way, you will get a clearer plan for lowering energy costs.

For more ideas on handling higher heating costs, see “Your Heating Bill Is Forecast at $1,030 This Winter. Millions Qualify for Help and Never Ask — 7 Moves to Make Now.”

6. Review retirement contributions

Are you leaving money behind? If your employer offers matching contributions, make sure you are getting the full match.

If your company matches up to 3% of your salary and you earn $50,000, it could contribute $1,500 to your 401(k) — but only if you contribute enough first. If you put in less, the company will only match what you put in, up to its limit.

Check the annual contribution limits for your retirement plan. If you are behind, build retirement savings into your budget and make up some ground while you still have time.

And if your employer does not offer a match, keep saving anyway. No one has more at stake in your retirement than you do.

7. Be realistic about year-end giving

As the year winds down, mailboxes and inboxes fill up with requests from charities, nonprofits and other causes. Choosing where to give can be difficult.

It becomes even harder if inflation or college costs have already strained your finances. Depending on your situation, you may not be able to donate as much as you did before.

That may feel disappointing, but you should not put your own financial well-being at risk.

Before donating or writing a check, look up the organization through sites such as CharityNavigator.org or GuideStar.org.

That gives you a better sense of how much of your donation may actually reach the people or programs you want to support.

Do the same for your favorite charities. If the numbers look off, you can direct your money elsewhere. If it is a newer or smaller organization, check its website for an IRS 990 form to review expenses and salaries.

You can also give in other ways, including:

• Volunteering. This does not have to mean physical labor. You might help write a nonprofit newsletter or contact businesses for school auction donations.
• Finding free items to donate. Sales and app promotions can make it possible to get food and toiletries free or nearly free, then pass them on to shelters or food pantries.
• Joining a Buy Nothing Facebook group. Things you no longer need may be useful to someone nearby, and you will also clear out clutter.

8. Rethink holiday spending

A recent Bankrate survey found that more than half of holiday shoppers plan to use credit cards. More than a quarter were likely to take on debt through credit cards or buy now, pay later options.

That means many shoppers are already accepting that they will carry a balance. Yikes.

You do not have to begin the new year with debt. Start by looking at your own holiday plans, including past celebrations. Did it take months to pay off those costs?

Look for ways to scale back and shop more wisely. For example:

• Do you really need several different meats and multiple desserts at a large holiday dinner? Could it become a potluck instead?
• Tell adult children that you are cutting back on gifts, such as giving only to those 18 and under or 80 and over. That may help the whole family budget, including older relatives whose retirement income is stretched thin.
• Take inventory of what you already have before buying decor or wrapping paper. Use gift cards and credit card rewards.

Expect some pushback. Complaints like “But we have always had turkey, ham and goose!” or “So I do not get a gift because I am in my 30s?” may make you feel guilty. But will those people help pay for the celebration later?

If you can afford to celebrate the old way, that is great. If not, start planning for a holiday season that is memorable without costing a fortune.

9. Build a sinking fund

You may already be facing some major expenses in the years ahead, such as a wedding, a baby or a down payment on a home. Or maybe you know you cannot put off replacing your tires — or your car — much longer.

That is where a sinking fund comes in: money set aside gradually to cover a specific large expense.

You can use one for recurring costs such as holidays, quarterly self-employment taxes or summer child care, as well as for events like weddings, birthdays or anniversaries.

Figure out what you will need over the next year, divide that total by 12 and save that amount each month. If weekly saving works better, divide by 52 instead.

A larger goal, such as a house down payment, will take longer. But while you are saving, you can also make other smart moves toward homeownership, such as improving your credit score and aiming for a better-paying job.

Keep in mind that a sinking fund is not the same as an emergency fund. A sinking fund is for a specific goal, while an emergency fund should remain untouched until a true emergency comes up.