Back to the Basics: Cost of Living Adjustment

Summary of Back to the Basics: Cost of Living Adjustment

by DIY Money

16m•March 20, 2026
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Overview of Back to the Basics: Cost of Living Adjustment

This episode of DIY Money (“Back to the Basics: Cost of Living Adjustment”) explains what cost-of-living adjustments (COLAs) are, how inflation affects everyday budgets, and practical ways listeners can handle a small annual pay bump or price increases. Hosts Ali and Q (A. Howard) share personal approaches to applying COLAs to budgets, offer three concrete strategies, and give simple, actionable guidance for protecting your standard of living.

Key topics covered

  • What inflation/COLA means in practical terms (groceries, gas, rent).
  • The latest Consumer Price Index mentioned in the episode: 2.5% (context for inflation).
  • Two hosts’ real-world approaches to applying a COLA to household budgets.
  • Behavioral changes you can make when prices rise (shopping, habits).
  • Housekeeping: how to submit listener questions and the $25 Amazon gift-card incentive.

Hosts’ recommended strategies for handling a COLA

Allie’s approach (practical, expense-first)

  • First, identify variable expenses that rise with inflation (groceries, gas, eating out).
  • Increase those specific budget lines modestly (example: add ~3% to a $100 gas budget).
  • Anticipate predictable fixed increases (e.g., rent increases at lease renewal) and “pretend” they’ve already happened so you’re not surprised.
  • After adjusting necessary expenses, re-evaluate the remaining income: pad tight areas, reallocate surplus to new goals or savings.

Q’s approach (three flexible options)

  1. Calculated allocation:
    • Determine what portion of your budget is variable. Example: if 50% of your budget is variable and you get a 3% COLA, you could raise variable-budget lines by ~6% (because the raise is being applied only to that half).
    • This gives a systemized way to offset inflation where it matters most.
  2. Observational adjustment:
    • Monitor which categories are visibly increasing (e.g., groceries, gas). Adjust those categories as the year goes on rather than preemptively changing everything.
  3. Habit-change strategy:
    • Instead of increasing spending with COLA, change behaviors: switch stores/brands, reduce discretionary trips, and keep your budget unchanged to force inflation-proofing through choices.
    • Alternatively, use the extra income to save, tithe, or invest rather than spending it.

Practical action steps (what to do next)

  • Calculate your COLA (or expected pay bump) and estimate after-tax monthly extra.
  • Identify the variable portion of your budget (groceries, gas, dining out, entertainment).
  • Option A (systematic): apply the “double” rule if variable expenses = 50% — increase those lines proportionally (example provided by Q).
  • Option B (targeted): update only categories that have clearly risen (use recent receipts to confirm).
  • Option C (behavioral): keep your budget amounts the same and change where/what you buy to absorb inflation.
  • Plan for predictable fixed increases (e.g., anticipate rent hikes when leases renew).
  • Decide what to do with any leftover: invest, save, tithe, or fund an emergency/goal account.

Notable moments & quotes

  • “The secret to wealth is pretty simple. Live on less than you make. Invest the rest and do so for a very long time.”
  • Host’s personal note on coping with hard days: recommendation to read the Book of John for spiritual support (personal reflection, not financial advice).
  • Practical example from Allie: “If I had budgeted $100 for gas… I might increase that by 3% — so now my budget would be $103.”
  • Q’s calculated example: with a 3% raise and 50% variable expenses, increase variable expenses by ~6%.

Housekeeping & sponsors

  • Listener questions: record a voice memo and send to podcast@diymoney.org — selected entries earn a $25 Amazon gift card.
  • Sponsors mentioned: McDonald’s (Filet-O-Fish app deal), Bleacher Report app, Carvana, and the Creative Entrepreneur Podcast.
  • Reminder: episode is for education/entertainment and not personalized financial advice — consult a financial advisor for individual decisions.

Quick takeaway

When you receive a COLA, don’t reflexively spend it. First, adjust budget lines that are actually increasing with inflation. Then choose between systematically allocating the raise to variable expenses, making targeted adjustments as you see price changes, or changing habits to keep your lifestyle steady while using the extra income to save, tithe, or invest.