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 claim they need to address but often never do.
What is the cost of living? It is the total amount of cash a household needs to cover basic home, career and lifestyle needs.
Any list of living expenses can include mortgage or rent payments, vehicle loans, health care costs, and food and utilities.
Below the surface, the cost of living can also include ancillary household expenditures like filling the gas tank, paying for a babysitter, and a round of golf at the local public course, among other day-to-day expenses.
The cost of living index is also used by private and public companies in the public interest.
“Employers use the cost of living index to determine wages, while government organizations use it to assess the need for measures such as annual adjustments to Social Security benefits,” he 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 relocation, especially for work reasons.”
What Makes Bulk Shopping Cost of Living?
In 2020, the average annual cost of living is $61,334, the Credit Summit report noted. (The US cost of living varies from state to state. It’s higher in California, for example, than in Mississippi.)
That average cost of living is likely to rise as it approaches 2023, financial experts report.
“From the beginning of 2021, the price of energy, such as electricity, gas, and other fuels, will be the main driver of the increase. inflation” said Lyle Solomon, principal attorney at Oak View Law Group in Jersey City, NJ
“Many Americans are saving during the pandemic because of financial support and the fact that covid-19 is shutting down businesses and encouraging people to stay at home instead of spending money on services they used before.”
But that financial cushion is shrinking as consumer goods and services become more expensive due to inflation, global supply chain issues, and higher interest rates.
“Because of the high inflation rate in particular, Americans’ savings will not last until 2022,” Solomon said. “In addition to affecting the value of savings accounts for people saving for an emergency or retirement fund, rising prices can be a more prominent source of discomfort.”
Credit Summit’s cost of living report points to five sharp costs, and cites the average annual cost to US households:
Housing-related expenses (beyond rent or mortgage): $2,838
Those prices will be higher if inflation is lowered.
Inflation in the US was the 13th highest among the 44 nations analyzed in the first quarter of this year, an average of 8.6%, according to the US Bureau of Labor Statistics.
“Moreover, in the United States, the inflation rate in the first quarter is almost four times higher than the same period in 2020,” the Credit Summit report noted.
US inflation is currently running at an annual rate of 7.7%.
Traditional big-ticket items such as housing, transportation, and food remain the top three expenses for most households in 2022.
“These three categories can take up a large portion of your income,” says Solomon. “Housing in particular is becoming increasingly expensive due to inflation, and that is the most serious problem for many US households.”
Transportation is cheaper than housing, but rising gas prices are also taking a toll on people’s finances. Energy prices rose significantly in 2022 before falling slightly in November.
Food costs are rising, and that’s a problem for low-income US households.
“The cost of food in the United States is actually not that expensive,” Solomon said. “However, it can be a significant problem for low-income households. If you don’t make a lot of money, eating healthy food can be a big part of the household food budget.
Rising Cost of Living
Americans 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 is important that households create a budget based on their monthly income,” says 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.”
It is also a good idea to use personal finance mobile applications like Mint, Personal Capital, or Goodbudget to get a firmer grip on income and spending.
“With the right apps, you can make better financial plans and save more money for what’s important,” says Solomon.
The head of the household should also focus on the desire versus the need to control cost-of-living expenses.
“You have to feed yourself (buy groceries) but you want to go out to eat,” said Jay Zigmont, founder of the Childfree wealth management firm in Lebak Cai, Miss. “Keeping a roof over your head is necessary, and having a good home is a desire.”
If these big-ticket items are holding you back, make equally big decisions to control them.
“Maybe it’s time to downsize an expensive house or rent one further away from the city, especially if you work long distances,” Zigmont told TheStreet. “If you’re married or living together as a partner and work long distance, it might be time to cut back to one car.”
“The bottom line is that everyone should have a budget and be mindful of their spending,” added Zigmont.
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