How To Manage Your Budget During Persistent Food Inflation

The household budget is an important part of the overall financial planning activity for every family. The manner in which this budget is managed impacts the kind of savings and further investments that are made over a period of time. One major component of the household budget is food items and with the prices rising sharply, there is a lot of pressure that families are under. There are ways in which this situation can be tackled, especially where the rise is not fleeting in nature. 

Food prices, by their very nature, are volatile and there are lots of times when there is a sharp jump in the prices of several items. This is often seen in potatoes, onions, tomatoes, pulses and even other smaller items like lemon, ginger, mint leaves, etc. The important part that requires some action on the budget front is the time period for which the prices remain elevated. If the rise is for a short period of time, then this is not a very tough job to tackle and it can be handled through proper management of the available funds. However, if the prices remain elevated for a longer time period and that too for high consumption items, then some reallocation would need to be done in the budget.

The widespread nature of the price rise can also have an impact on when there is a need to take a relook at the overall budget. If the rise is restricted to a few areas and these turn out to be short-lived, then there is not much of a problem. If the rise is widespread and it is across vegetables plus cereals and even wheat and rice, then the problem becomes acute. This is because the price rise will impact a large part of the food budget and this will require a lot of additional funds that would have to be spent here. This kind of situation cannot be constantly met through the buffer or the contingency part that has been built into the budget.

The way in which the situation would have to be handled is to ensure that the entire budget for the time being is reworked. This will require reallocation of money between various areas and this will mean that money will have to be taken from some other allocation and given to this area. This process of reallocation will be different for each family, as they will need to see where they can cut back on expenses and allocate more money here. The extent of the budget that is spent on food will also be important because if a lower amount in terms of percentage is used, then it is easier to do this reallocation.

The important part of completing the entire exercise is which other expenses would need to be sacrificed. In many cases, the first impact is seen on entertainment, eating out and even shopping expenses that have to be curtailed. This is the most obvious area where the amount can be shifted from and it will ensure that those spends that are not immediately required, or those that can be pushed back are taken into consideration. In some cases, a higher value purchase might have to be pushed back. This will ensure that for the immediate future, when more amounts are needed for the purpose of food expenses, these are available.

Arnav Pandya is founder at Moneyeduschool.