Are you wondering how much inflation is currently putting a strain on your budget?
It’s a nice round number: $460 a month in additional spending by US households, say economists at Moody’s Analytics.
The figure comes from Moody’s Senior Economist Ryan Sweet, who compared US goods and services prices in May 2022 to similar prices for the same month in 2018 and 2019.
Currently, the average annualized inflation rate is 8.5%, compared to an average of 2.1% in 2018 and 2019, Moody’s reported.
The difference, according to Moody’s, was an additional $460 per month in “pure costs” in US household spending compared to 2018-2019.
The report comes as US household debt rose to a record $16.5 trillion in the second quarter, according to the US Federal Reserve. This debt burden was driven by more than $200 billion in excess household mortgage debt, coupled with a significant increase in consumer credit card and auto loan debt.
“Consumers are spending more each month on the same basic necessities and discretionary purchases that they paid for a year ago,” said Andrea Woroch, consumer savings expert at www.AndreaWoroch.com.
“Although some people have reduced their purchases, many haven’t changed their spending habits much and as a result spend more and get into debt because everything costs more.”
Frustrated Consumers
The household debt fire is being fueled by pent-up demand for travel, dining out and shopping in general as the pandemic has eased.
“Some people just weren’t willing to stay home any longer, even if it meant taking on debt to move away or return to their pre-pandemic lifestyle,” Woroch said.
“However, it is necessary to review your budget and monthly expenses and make adjustments to avoid going into debt. It’s possible to still enjoy some of the luxuries you don’t want to do without, like travel and dining out, without going into debt as long as you budget, save, and look for deals and savings.”
“The extra spending has also forced Americans to reach into their savings to make ends meet,” said Kunal Sawhney, chief executive of the Kalkine Group, an international equity market research firm.
“Even after experiencing 13 straight months of high inflation, the US government recently claimed that these are temporary factors.”
The White House also continues to trust in the strength of the US economy.
“The Biden administration claims that GDP growth rates have doubled in two consecutive quarters of controlled unemployment, household finances and strong consumer spending,” Sawhney said.
Action steps to curb spending
What tips and strategies can hard-hit Americans use to save and not overspend while still paying the bills and putting food on the table?
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Woroch has some ideas.
Balance your budget. In times of change it is necessary to update your budget and spending plan.
“Inflation is one of those triggers where you have to step back and reevaluate what you’re spending money on,” Woroch said.
“It doesn’t mean you have to make big sacrifices. But paying attention to what you’re spending money on can help you spot wasteful and unnecessary spending on things you really don’t need or that you enjoy a lot.”
track everything. When budgeting, don’t overlook the need to actually track your spending and purchases.
“It’s one thing to set a budget and quite another to stick to it,” Woroch noted. “Use an app like Pocket Guard to keep track of all your expenses, monthly bills and daily purchases. The app even warns you when you’re about to enter a category, so you can control your spending and make better purchasing decisions.”
Refine your monthly bills. Don’t assume that your monthly bills are set in stone.
“You could potentially save on various necessities by doing a little research, bargaining, or just switching providers,” Woroch said.
“For example, increase your car or home insurance deductible to get a 5-20% discount on your annual/monthly premium. Paying upfront and bundling services will also reduce your monthly payments.”
Downgrade your data plan. Most people waste money on unnecessary unlimited data plans. So check your usage and downgrade to a lower and cheaper data plan, Woroch added.
“Or consider switching to an online-only cellphone provider like Mint Mobile, which offers big savings when you pay for the service upfront and takes the 12-month plan for talks, text, and data to just $15.” per month,” she said.
“This is a huge area of potential savings that most Americans could take advantage of without sacrificing service.”
Pay off high-interest debt. High-interest credit card debt can eat up your monthly budget, so focus on paying off that debt to free up cash at the grocery store and gas station.
“The easiest and cheapest way to do this is to transfer your balance to a zero percent balance transfer card, which waives interest for 12 to 21 months, giving you more time to make smaller payments without incurring interest charges accumulate as we get through this difficult economic situation,” Woroch noted.
“Otherwise, use that time to make larger payments that will pay off the principal balance faster and save you more over time so you can finally be debt-free.”
“Review and compare credit transfer cards at sites like www.CardRates.com to find the best one for your needs and credit rating,” she added.