People who pay the bills might notice, but Americans in general don’t seem to care much about the cost of living.
Too often the cost of living is an abstract concept that heads of households claim they need to address but often never do.
What is the cost of living? This is the total amount of money a household needs to cover basic housing, career and lifestyle needs.
Any list of living expenses can include mortgage or rent payments, a car loan, health care costs, and food and utilities.
Below, the cost of living may also include household expenses such as filling the gas tank, paying a babysitter, and a round of golf at the local public course, and other day-to-day expenses. day.
Cost of living indexes are also used by private and public enterprises for the general good.
“Employers use cost-of-living indexes to determine wages, while government organizations use them to determine the need for measures such as annual changes in Social Security benefits. Security,” said Credit Summit, in a new report on the cost of living in the US
“These measures are also used by people who are considering moving, especially for employment reasons.”
What Makes Up Most of the Cost of Living?
In 2020, the average annual cost of living stood at $61,334, the Credit Summit report said. (The cost of living in the US varies from state to state. It is higher in California, for example, than in Mississippi.)
That average cost of living looks set to get even higher by 2023, financial experts report.
“Since the beginning of 2021, the prices of energy, such as electricity, gas, and other fuels, will be the main reason for the increase in inflation,” said Lyle Solomon, principal attorney at Oak View Law Group. in Jersey City, NJ
“Many Americans have saved during the pandemic because of financial support and the fact that covid-19 has closed businesses and prompted people to stay at home rather than spend on services they used to use.”
But that financial cushion is shrinking as consumer goods and services grow more expensive due to inflation, global supply chain problems, and higher interest rates.
“Because of high inflation rates in particular, Americans’ savings won’t go away until 2022,” Solomon said. “In addition to affecting the value of savings accounts for those saving for an emergency or retirement fund, rising rates will be a more prominent source of discomfort.”
Credit Summit’s cost of living report focuses on the five most pressing costs, and discusses their average annual cost to US households:
Health Care: $5,177
Housing-related expenses (beyond rent or mortgage): $2,838
These prices will increase unless inflation is reduced.
Inflation in the US is the 13th highest among the 44 countries analyzed in the first quarter of this year, averaging 8.6%, according to the US Bureau of Labor Statistics.
“Furthermore, in the United States, the first quarter inflation rate is almost four times higher than the same period in 2020,” the Credit Summit report said.
Inflation in the US is currently running at an annual rate of 7.7%.
Traditional big items like housing, transportation, and food remain the top three expenses for most households in 2022.
“These three categories can consume a large portion of your income,” Solomon said. “Housing in particular has become more expensive due to inflation, and this is the most serious issue for many US households.”
Transportation is cheaper than housing, but the rise in gas prices has also put a strain on people’s finances. Energy prices rose sharply in 2022 before easing in November.
Food costs are rising, and that’s an issue for low-income US households.
“The cost of food in the United States is actually not that expensive,” Solomon said. “However, this can be a significant issue for low-income households. If you’re not making enough money, takeout as well as healthy food can take up a large portion of a household’s food budget.
Rising Cost of Living
Americans struggling to keep up with the cost of living should take a step back, take stock, and use the financial management tools available to address these issues.
“It is important that households create a budget based on monthly income,” advises Solomon. “Tracking your expenses is an effective way to change your spending habits, but it can be overwhelming if you have a lot of payments to make.”
It’s also a good idea to use personal finance mobile apps like Mint, Personal Capital, or Goodbudget to get a firmer grip on income and spending.
“With the right app, you can make better financial plans and save more money for what’s important,” Solomon said.
Heads of households must also focus on wants versus needs to control the cost of living.
“You have to feed yourself (buy groceries) but going out to eat is a preference,” says founder Jay Zigmont of money management firm Childfree Wealth in Water Valley, Miss. “Keeping a roof over your head is a need, and having a nice home is a want.”
If these big-ticket items are holding you back, make an equally big decision to get them under control.
“Maybe it’s time to downsize to an expensive house or rent something out of town, especially if you work remotely,” Zigmont told TheStreet. “If you’re married or living together and work far away, it might be time to cut back on a car.”
“The bottom line is that everyone should have a budget and be conscious of their spending,” added Zigmont.
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