Too often the cost of living is an abstract concept that breadwinners admit they face, but often never do.
What is the cost of living? It is the total amount of money a family needs to cover basic home, career and lifestyle needs.
Any cost-of-living list could include a mortgage or rent payment, a loan on a vehicle, health care costs, food, and utilities.
Under the surface, your cost of living can also include incidental household expenses like filling up your gas tank, paying for a babysitter, and a round of golf at the local public course, among other day-to-day expenses.
Cost of living indices are also used by private and public companies for the common good.
“Employers use cost of living indices to determine wages, while government organizations use them to assess the need for measures such as annual Social Security benefit adjustments,” Credit Summit said in a new report. on the cost of living in the US
“These measures are also used by people who intend to relocate, especially for work reasons.”
What constitutes the majority of cost of living expenditure?
In 2020, the median annual cost of living was $61,334, the Credit Summit report noted. (The cost of living in the US varies from state to state. It’s much higher in California, for example, than in Mississippi.)
That average cost of living appears to be significantly higher as 2023 approaches, financial experts report.
“Since early 2021, energy prices, such as electricity, gas and other fuels, have been the primary driver of rising inflation,” said Lyle Solomon, Oak View’s chief prosecutor Law Group of Jersey City, NJ.
“Many Americans have saved during the pandemic thanks to financial support and the fact that covid-19 has closed businesses and prompted people to stay home rather than spend money on services they previously used.”
But that financial cushion is shrinking as consumer goods and services get more expensive due to inflation, global supply chain issues and higher interest rates.
“Due in particular to high inflation rates, Americans’ savings won’t go that far in 2022,” Solomon said. “In addition to affecting the value of savings accounts for those who have been saving for an emergency or retirement fund, rising prices may be a more important source of distress.”
The Credit Summit Cost of Living Report identifies five particularly high expenses and quotes the average annual costs for US households:
Housing-related expenses (beyond rent or mortgage): $2,838
Those prices will rise unless inflation is contained.
Inflation in the US was the 13th highest among 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 first-quarter inflation rate was nearly four times higher than in the same period in 2020,” the Credit Summit report noted.
Inflation in the US is currently at an annual rate of 7.7%.
Traditional large items such as housing, transport and food remain the top three expenses for most households in 2022.
“These three categories can eat up a sizable portion of your earnings,” Solomon said. “Housing in particular is becoming more expensive due to inflation, and is the most serious problem for many US families.”
Transportation is cheaper than housing, but rising gas prices have also put a strain on people’s finances. Energy prices rose sharply in 2022 before declining slightly in November.
Food costs are rising and this is a problem for low-income US families.
“Food costs in the United States are actually not that high,” Solomon noted. “However, it can be a significant problem for low-income families. If you don’t make a lot of money, takeout and healthy food can make up a big part of a family’s food budget.
Get a head start on your cost of living expenses
Americans who are struggling to keep up with the cost of living need to step back, assess the situation, and use the financial management tools available to address these issues.
“It’s critical that families create a budget based on monthly earnings,” Solomon advised. “Tracking your spending is an effective way to change your spending habits, but it can get 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 get a firmer grip on your income and expenses.
“With the right app, you can make better financial plans and save more money for what matters,” Solomon said.
Heads of households should also focus on wants versus needs to control cost-of-living expenses.
“You need to feed yourself (buy groceries) but going out to eat is a need,” said founder Jay Zigmont of the money management firm Childfree Wealth in Water Valley, Miss. a beautiful home is a wish.
If these expensive items are holding you back, make an equally important decision to keep them in check.
“It may be time to downsize an expensive home or rent something further out of town, especially if you’re working remotely,” Zigmont told TheStreet. “If you’re married or live together as a partner and work remotely, it might be time to cut down to a car.”
“The bottom line is that everyone needs to be on a budget and be mindful of their spending,” Zigmont added.
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