A double-digit surge in energy prices and rising inflation will be the main challenges facing Bulgarian households when planning their family budgets this winter. The difficult task of the household “budget manager” will be to convince family members that there is always room to punch another hole in the belt. The approach should be constructive—softly, kindly, and with a little… which, translated into the language of positivism, means: it will be tough, but we will get through this challenge together, without unnecessary luxuries, advises Rositza Vartonik, Executive Director and Founder of the Financial Literacy Initiative Foundation, in an interview with BTA.

There are neither ready-made nor easy solutions for how to act in such a situation, especially for people with more limited incomes, the expert said, noting that the first step we need to take is to review household expenses again and reduce those that are unnecessary at this stage. Weekend trips can be less frequent, and purchases considered a luxury by the family should be postponed to better times. The expert уточнява that the family “Disasters and Emergencies” fund should already contain a standing amount (assuming it has been built up since the beginning of the pandemic) sufficient for the household to survive on minimal expenses for three to six months in the event of job loss. Any free savings beyond this fund can be invested in improving home insulation, installing new windows, and purchasing energy-efficient household appliances in order to reduce future utility bills, she advises.

For the group of people with very low incomes, the role of the state will be most important in helping them cope with the upcoming winter season, said Rositza Vartonik. In this direction, state support should also be targeted at small businesses that will be adversely affected by high prices and the pandemic.

For people with higher incomes and larger bank deposits, the expert advises redirecting funds that are typically held in bank deposits into other financial instruments. The reason is that inflation and zero—or in some cases even negative—bank interest rates will erode the value of savings held in banks. One option, for example, is to turn to longer-term investments in mutual funds. Another traditional “safe haven” for money in times of inflation is investment in precious metals such as gold or in real estate. Investment-linked life insurance policies are also an option—they may be suitable for people who lack the discipline to set aside money regularly and who also want to provide protection for themselves and their loved ones in difficult times. However, it is very important to conduct thorough research beforehand, so that we clearly understand what the different financial instruments are, what benefits they offer, what risks they carry, and what costs are associated with them. If we need help and more detailed explanations, we can turn to independent financial advisers—they are not tied to a specific financial company and therefore have no obligation to recommend its products. Such consultations usually involve a fee.

The widespread belief that you need substantial capital in order to invest is not true, the expert says. In fact, one can start with as little as BGN 50–100, for example by purchasing shares in a mutual fund. Savings investment plans are another option, allowing a small amount to be automatically set aside each month for investments. What is necessary before embarking on this process, however, is proper preparation and awareness. We need to understand that chasing quick profits is a risky endeavor. For non-professional, beginner, and small investors, it is more reasonable to opt for a longer-term strategy and to take into account the level of risk of the investments they choose.

Overall, the formula for family budget planning should reflect the increase in prices of goods in the household’s personal consumption basket, allocating on average that much more funding by reducing and cutting back on expenses that are unnecessary in such a critical situation. In other words, it is always advisable to increase planned funds for essential household expenses by ten percent, after reviewing and eliminating expenditures that are not currently necessary for the household, the expert believes. At the same time, expenses cannot be reduced indefinitely—there is a threshold of subsistence minimum. This process should be accompanied by an active search for opportunities to increase household income during a crisis—through additional work or a new business.