People who pay the bills may notice, but Americans in general don’t care much about the cost of living.
Cost of living is often an abstract concept that householders admit they need to address, but often don’t.
What is the cost of living? This is the total amount of cash a household needs to cover basic household, business and lifestyle needs.
Any list of living expenses can include mortgage or rent payments, car loans, health care costs, food and utilities.
At the bottom, the cost of living may also include household expenses such as filling up the gas tank, paying a babysitter and a round of golf at the local public course, and other daily expenses.
Cost of living indices are also used by private and public enterprises for the general good.
“Employers use the cost of living index to determine wages, while government agencies use it to assess the need for measures such as annual adjustments to Social Security benefits,” according to a new report on the cost of living at the Credit Summit. USA
“These measures are also used by people who have to move, especially for employment reasons.”
What is the main cost of living?
The Credit Summit report noted that the average annual cost of living in 2020 was $61,334. (The cost of living in the US varies from state to state. For example, it is much higher in California than in Mississippi.)
Financial experts report that this average cost of living will be much higher as 2023 approaches.
“Since the beginning of 2021, energy prices such as electricity, gas and other fuels have been the main driver of inflation,” said Lyle Solomon, principal attorney at Oak View Law Group in Jersey City, New Jersey.
“Many Americans are struggling during the pandemic due to financial support and the fact that covid-19 has shut down businesses and forced people to stay at home rather than spend money on services they previously used.”
But that financial cushion is shrinking as consumer goods and services become more expensive due to inflation, global supply problems and high interest rates.
“Because of the high rate of inflation, Americans’ savings will not go away until 2022,” Solomon said. “In addition to affecting the value of savings accounts for those who have saved for an emergency or retirement fund, rate hikes can be a significant source of discomfort.”
The Credit Summit’s Cost of Living report points to five extreme costs and shows their average annual costs for US households:
Housing-related expenses (other than rent or mortgage): $2,838
Until inflation is brought down, these prices will continue to rise.
According to the US Bureau of Labor Statistics, inflation in the US in the first quarter of this year was the 13th highest among the 44 countries analyzed and averaged 8.6%.
“Furthermore, in the United States, inflation was nearly four times higher in the first quarter than in the same period of 2020,” the Credit Summit report said.
Inflation in the US is currently running at an annual rate of 7.7%.
Traditional big-ticket items like housing, transportation and food will 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 is becoming more expensive due to inflation, and this is the most serious problem for many US households.”
Transportation is cheaper than housing, but the rise in gas prices has also made the financial situation of people difficult. Energy prices rose sharply in 2022 before easing slightly in November.
Food prices are on the rise, and that’s a problem for low-income US households.
“Food costs in the United States are really not that expensive,” Solomon said. “However, this can be a significant issue for low-income households. If you don’t make a lot of money, grocery and healthy food can make up a large part of a household’s food budget.”
Keeping track of living expenses
Americans struggling to keep up with the cost of living need to take a step back, assess the situation, and use financial management tools to address these issues.
“It’s important for households to create a budget based on their monthly income,” Sulaiman said. “Tracking your spending is an effective way to change your spending habits, but it can become difficult if you have a lot of bills.”
It’s also a good idea to use personal finance mobile apps like Mint, Personal Capital or Goodbudget to get a sense of income and expenses.
“With the right program, you can make better financial plans and save more money for the things that matter,” Solomon said.
Household heads should also focus on needs and wants to control living expenses.
“You have to feed yourself (buy groceries), but you need to go out to eat,” said Jay Zygmont, founder of Childfree Wealth, a fund management firm in Water Valley, Miss. A beautiful house is a desire.”
If these big-ticket items are holding you back, make the same decision to get them under control.
“It might be time to downsize or rent something further out of town, especially if you work remotely,” Zygmont told TheStreet. “If you’re married or living together as a partner and work long distance, it might be time to get back into the same car.”
Zygmont added that “the bottom line is that everyone should be on a budget and aware of their spending.”
Black Friday Sale
Get Action Alerts PLUS + Ratings Quants investing insights for one low price.
- Action Alerts PLUS: Open portfolio guides, access to portfolio managers and market analysis every trading day.
- Quantity Ratings: Get stock ratings, key financial indicators, and ratings upgrades and downgrades to analyze your stocks.
Claim this deal now!