The people who pay the bills may notice, but Americans as a whole don’t seem to pay much attention to the cost of living.
Too often the cost of living is an abstract concept that householders admit they have to address but often never do.
What is the cost of living? It is the total amount of cash a household needs to meet basic household, career and lifestyle needs.
Any cost of living list might include a mortgage or rent payment, a car loan, health care costs, and food and utilities.
Below the surface, the cost of living can also include ancillary household expenses such as filling up the gas tank, paying for a babysitter and a round of golf at the local public course, among other everyday expenses.
Cost of living indexes are also used by public and private companies for the common good.
“Employers use cost-of-living indexes to determine wages, while government organizations use them to assess the need for measures such as annual adjustments to Social Security benefits,” Credit Summit said in a new report on the cost of living in the country. . USA
“These measures are also used by people who are considering moving, especially for work reasons.”
What makes up most of the cost of living expense?
In 2020, the average annual cost of living stood at $61,334, according to the Credit Summit report. (The cost of living in the United States varies from state to state. It is much higher in California, for example, than in Mississippi.)
That average cost of living looks set to be considerably higher as 2023 approaches, financial experts report.
“Since early 2021, energy prices, such as electricity, gas and other fuels, have been the main driver of rising inflation,” said Lyle Solomon, principal attorney at Oak View Law Group in Jersey City, NJ.
“Many Americans saved during the pandemic due to financial support and the fact that covid-19 closed businesses and caused people to stay at home instead of spending money on services they had previously used.”
But that financial cushion is shrinking as consumer goods and services become more expensive due to inflation, problems in the global supply chain and higher interest rates.
“Because of high inflation rates in particular, Americans’ savings aren’t going as far in 2022,” Solomon said. “In addition to affecting the value of savings accounts for those who have saved for an emergency or retirement fund, rising prices may be a more prominent source of discomfort.”
Credit Summit’s cost of living report points to five particularly acute expenses and cites their average annual costs for American households:
Health care: $5,177
Housing-related expenses (other than rent or mortgage): $2,838
Those prices will rise unless inflation is reduced.
Inflation in the US USA it was the 13th highest among the 44 nations 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 inflation rate in the first quarter was almost four times higher than in the same period of 2020,” the Credit Summit report notes.
Inflation in the US USA it is currently at an annual rate of 7.7%.
Traditional high-value items such as housing, transportation and food remain the top three expenses for most households in 2022.
“These three categories can eat up a significant portion of your earnings,” Solomon said. “Housing in particular is getting more expensive due to inflation, and it’s the biggest problem for many American households.”
Transportation is cheaper than housing, but rising gas prices have also hurt people’s finances. Energy prices rose significantly in 2022 before easing slightly in November.
Food costs are rising, and that’s a problem for low-income American households.
“Food costs in the United States are actually not that expensive,” Solomon noted. “However, it can be a major problem for low-income households. If you don’t make a lot of money, takeout and healthy food can be a big part of a family’s food budget.
Get a head start on cost of living expenses
Americans who are struggling to keep up with the cost of living should take a step back, assess the situation, and use the financial management tools available to address these issues.
“It’s critical for households to create a budget based on monthly income,” Solomon advised. “Tracking your expenses is an effective way to change your spending habits, but it can become overwhelming if you have a large number of payments to make.”
It’s also a good idea to use personal finance mobile apps like Mint, Personal Capital or Goodbudget to track income and expenses.
“With the right app, you can make better financial plans and save more money for what matters,” Solomon said.
Householders should 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 desire,” said founder Jay Zigmont of money management firm Childfree Wealth in Water Valley, Mississippi. “Having a roof over your head is a necessity and a nice house is a desire.”
If these high-value items are holding you back, make an equally important decision to control them.
“It might be time to downsize from an expensive house or rent somewhere further out of town, especially if you’re working remotely,” Zigmont told TheStreet. “If you’re married or living together as partners and work remotely, it might be time to downsize to just one car.”
“The bottom line is that everyone should have a budget and be aware of their expenses,” added Zigmont.
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