How to Smooth Out Budget Shocks

All of us who regularly keep up with a budget know that we don't just jot down predicted expenses and expect them to remain the same in perpetuity.

Every year, even less often, we make a tweak here, bump up the likely bill cost there.

It's inflation. Nothing new there.

However, the past few years have delivered some bouts of inflation that have been far more sudden and steep than we've been used to seeing in the past. Most notable was the post-COVID inflation spike. But even more recently, as consumer price growth has moderated broadly, we've still seen several specific costs rocket higher.

Many of you might have found that these financial shocks have forced you to more substantially retool your projections for future months. But as long as these occasional shocks persist, traditional budgeting could keep most of us a step behind. 

That's why this week, I'm talking to Grant Gallagher, Director of Financial Wellbeing at New Jersey-based Affinity Federal Credit Union, about a budgeting technique that can help keep some of us a step ahead: 

The "variable expense buffer."

Sudden, Sharp Inflation Has Been the Post-COVID Norm

When the 2020s are all said and done, we might very well look back at it as the era of rising prices. COVID, international conflict, tariffs, and more have all conspired to create one of the worst stretches of inflation in our nation's—and, in fact, the world's—history.

Young and the Invested Tip: If you don't already budget, a number of apps can help you wrap your head around your finances. Here are our top-rated picks.

I could point at any number of costs that have skyrocketed in just a few years: mortgages and rent, insurance, car prices, food … I could blindly throw darts and hit bull's-eyes every time. But let's look at one of the most recent examples of sudden price shocks to give you an idea of what many Americans are dealing with:

Energy prices.

"People typically expect their utility costs to fluctuate seasonally, but the more notable trend has been a broader, structural increase driven by surging demand from data centers and AI," Gallagher says.

Consider that a couple weeks ago, the Energy Information Administration reported that the average price of residential electricity in the U.S. was 17.24¢ per kilowatt hour in December 2025. That's …

• 6% more from the same month a year ago, which is double the rate of inflation over that time.
• A roughly 35% increase from five years ago.

Bad? Certainly. Worse than bad. But it also barely scratches the surface of the level of shock some American households have experienced over the past few years. Consider this, from a September 2025 Bloomberg report (emphasis ours):

"A Bloomberg News analysis of wholesale electricity prices for tens of thousands of locations across the country reveals the effects of the AI boom on the power market with unprecedented granularity. The locations and prices were tracked and aggregated monthly by Grid Status, an energy data analytics platform. Bloomberg analyzed the data in relation to data center locations, from DC Byte, and found that electricity now costs as much as 267% more for a single month than it did five years ago in areas located near significant data center activity."

It's hardly the only expense where inflation has remained persistent, either.

"Groceries used to be pretty steady—you could plan your whole month's budget without too much variability," Gallagher says. "But we're seeing so much more fluctuation in pricing. And even for people who have the luxury of using grocery store apps or delivery apps, those have dynamic pricing built in. So if you're trying to do a month-to-month budget, you're probably going to get wildly different costs with those purchasing tools."

We have to at least nod to the terrible fact that, for some families, massive ramp-ups in these costs can be a budget-breaker—something that could only be cured by a complete rework of your budget, and maybe even stripping down to a bare-bones budget.

Young and the Invested Tip: Budgeting in retirement isn't too far removed from budgeting during your working years, but there are still some important differences.

Today's budgeting advice is instead directed toward people who might ultimately have the financial resources to absorb these blows, but still would feel considerable pain—and want to lessen that pain.

What's a “Variable Expense Buffer"?

Are you looking to shield your budget from sizable shocks in variable expenses similar to the ones we've mentioned above?

Gallagher suggests building a "variable expense buffer" into your budget.

Here's how it works:

• You evaluate your last six to 12 months' worth of total expenditures.
• You set aside 10% of that amount each month as an "expense buffer."
• If you experience a sharp spike in one of your budget's categories, you put that money toward that bill.
• If you don't end up needing to use that buffer in a given month, you can roll it over into the next month. The money you would have set aside for the next month could be used to build your emergency savings.

"That's ideal, but it's a challenge," Gallagher says. "For some, it's impossible to set aside 10% across the board for your entire budget. In that case, evaluate your top categories to determine which ones have been the most variable—these are usually utilities and groceries. Try to set aside 20% of only those most variable categories."

Highly variable budgets are nothing new—plenty of Americans have been dealing with them for a long time, potentially their whole careers. However, that's typically been because of variable income. (Hospitality industry: I'm looking at you.)

"However, we're in an unusual place where the expenses have been a lot more variable—where people who typically work from a fixed budget are having to learn [to adapt]," Gallagher says.

Yes, even a fixed budget includes variable expenses, but they're generally only set up to deal with minor variances in those expenses—variances both higher and lower that may cancel each other out, and some of which you may have a little control over if you need to correct mid-month.

But they're rarely set up to account for large, sudden swings in expenses, however. And that's what the variable expense buffer addresses.

Young and the Invested Tip: This advice also isn't meant for people who experience a sudden drop in income due to job loss. If you've been laid off, here's a list of top budgeting priorities.

"At its most basic function, you're just looking at smoothing out your cash flow," Gallagher says.

He also notes that the variable expense buffer is useful for anyone who wants to plan ahead for price increases they expect to happen. 

"Insurance costs have had unusually high jumps and that's been a shock for people," he says. "Same with property taxes—a lot of townships have started recognizing that real estate values have gone up without having done new tax assessments, so taxes are going up. And childcare costs. These are more once-a-year hikes, but people should be on the lookout for them so they can build in some buffer."

Like I mentioned above, implementing a variable expense buffer could be tough to impossible if you're already at the end of your budget with no additional wiggle room. Gallagher notes there are still at least a few ways in which people can get price relief without entirely cutting items from their budget.

"We've seen some success among our members in finding a reprieve by changing insurance carriers," he says. "Even though insurance is going up overall, there are still deals to be found—if you've been with the same provider for three or four years, switching to another can usually get you a better deal for a while.

"Same thing with your cell phone or internet provider—those seem to always raise your rate every year. But if you go out into the market, there's always a sign-up bonus or discount for the first couple of years. So there are deals out there, and you're not necessarily stuck overpaying for everything."

Young and the Invested Tip: Looking to negotiate costs lower? Check out our guide on expenses you can likely haggle down.

Riley & Kyle

Young and the Invested

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