Cutting back is an obvious step to cope with inflation. But belt-tightening need not mean living without comfort. There are other (important) ways to shape up your finances.

Consider refinancing your mortgage loan early

When it comes to belt-tightening measures, focus on cutbacks that will have a significant impact on your budget.

Your home loan is one prime example. Even a small increase in interest rates can affect your monthly instalment and the effective interest rate that you will end up paying for your loan.

Here’s what happens to the monthly instalment for a S$800,000 30-year loan at different interest rates using monthly rest method:

You should review your home loan to see if you can save money by refinancing, especially if you are out of the lock-in period. Consider loan packages that offer stable rates or the flexibility to refinance early.

Even if you are not, start finding out the available options early as the refinancing process takes time.

Note: HDB flat buyers are not allowed to refinance their existing bank loan with an HDB loan.

Review your budget and make plans for cuts

When things get more expensive, most of us instinctively think of how to cut back on spending because we feel the pinch, or it makes us feel like we are getting a raw deal.

Managing your expenditure starts with being able to tell between needs and wants.

Needs are things you can’t live without, like food or utilities.

Wants are the things you desire. They could be more expensive (but not necessarily better) substitutes for your needs or just non-essential items, like a new pair of shoes to add to your collection.

You may not have to stop dining out; choosing more economical venues or cuisines might do.

Cabbing can still continue, but you may have to share a ride.

Dropping the daily cuppa is not necessary; you could mix and match between buying cold brews and kopi peng.

By making adjustments to your lifestyle, you can cope with rising prices without compromising on other aspects of your well-being – financially and overall!

Put off large purchases

Large purchases, when your cashflow is under strain, are a bad idea.

Do you really need to renovate your house now or can you wait a few more years? Can you postpone buying a new mobile phone?

Instalment payment plans and "buy now, pay later" options may make big-ticket items appear affordable by spreading out payments.

However, they do not reduce the cost of your purchase. If you miss any payments, you may incur late fees or other charges, making the purchase even more expensive.

Why inflation matters

All the money that we save will be eroded over time by the effects of inflation – that has a major bearing on our retirement planning.

Put simply, you will not be able to buy as much in the future with the same amount of money that you do today.

If you haven’t started, when’s a better time than feeling the heat of rising prices to make plans for your retirement?