For months we’ve been dealing with record-high inflation, the highest inflation in 40 years. The concern for many consumers is that these surging prices are affecting the cost of essential items like food, gas, and housing. And more price surges may be on the way as the Russian invasion of Ukraine is said to be impacting gas, wheat, and corn production.
Although headlines have touted the same statistic, “40-year high inflation” for months, new data from Bloomberg’s economists says that what that essentially means for U.S. consumers is that in order to live the exact same life you lived in 2021, it will cost you an extra $5,200 in 2022.
Broken down across 12 months, that $5,200 breaks down to consumers paying an additional $433 a month for the same things they bought in 2021.
This likely helps explain why 52 percent of consumers reported in a recent CNBC Momentive survey that they are experiencing more financial stress now in 2022 than they were a year ago in 2021.
Lauren Melodia is the deputy director of macroeconomic analysis at the Roosevelt Institute. She said that in February 2022, 75 percent of the inflation prices consumers were paying came from three main sectors: food, energy, and housing.
“These are basic necessities — people cannot delay or substitute them. You have to pay your rent or your mortgage every month,” Melodia says. “You have to eat food every day, you need electricity and gasoline to be able to show up for work and take care of your family.”
So what are consumers doing to help save money during this record pinch?
According to an online survey of 4,000 adults by CNBC + Acorns Invest in You, conducted by Momentive on March 23-24, the top three ways people are saving money are by cutting back on eating out (53 percent), driving less (39 percent), and canceling monthly subscriptions.
People are also canceling vacations to keep up with inflation, the survey found. And those adults that are cutting back on eating out? About 50 percent added that they would consider further reducing dining out if inflation continues to surge.
Inflation Costs Consumers an Extra $5k in 2022
Now that we know that our essential items will cost an additional $5,200 in 2022, what steps can you take to stay out of debt? Or at least lessen the amount of debt you incur due to inflation?
The number one way to keep yourself out of debt is to create and follow a budget.
“Having your eyes focused on your spending is always a good strategy,” said Susan Greenhalgh, an accredited financial counselor who runs Mind Your Money LLC in Rhode Island. “You really can’t understand what’s happening with your money unless you’re really looking at it and measuring it.”
“The No. 1 goal is, no matter what, to protect the necessities, and that is food, shelter, basic transportation, and basic medical,” said Tania Brown, an Atlanta-based certified financial planner and founder of FinanciallyConfidentMom.com.
Greenhalgh says that tracking your spending right now serves a dual purpose – you can track your spending and get an idea of areas where you can scale back spending – at least temporarily.
“Inflation hits everyone differently,” she says. “If you’re someone who doesn’t eat out much but is getting pummeled by gas prices at the pump, reducing driving will probably help your budget more than skipping a few dinners at a restaurant.”
Tip: Prices are rising so quickly that you may have to make adjustments to your budget on a monthly or even weekly basis.
2. Cancel Some Services – Temporarily
According to J.D. Power, the average household has 4.5 streaming services and spends an average of $55 on them per month. This may not seem like much, but $55 a month adds up to more than $600 per year. If you’re trying to cut expenses in the face of higher prices, then ditching unused subscriptions can be a good place to start.
“Most of us also have some discretionary spending that is purely wants-based, not needs-based,” says Eric Roberge, CFP and founder of Massachusetts-based Beyond Your Hammock.
Think about the things you spend money on that you enjoy but can live without. Keep in mind that even small changes can add up and make a difference between taking on debt and avoiding it.
For example, maybe you love using all of the different weights and equipment at the gym, but you’re spending an extra $45 a month on gas. Consider canceling your gym membership and working out outside during the summer months to save both on your gym membership and the cost of fuel.
3. Skip Dining Out & Take Out
Eating at home is much more affordable than dining out or ordering take out – even as prices at the grocery store are rising.
When shopping at the grocery store, consider purchasing generic brands instead of name-brand products. Generic brands are often similar in taste and quality but can vary dramatically in terms of price. Figure out where you can compromise and buy organic instead.
4. Increase Your Income
Finding ways to increase your income – at least temporarily – can make periods of extended inflation easier to get through and budget for.
Some of the possibilities for increasing income include:
- Selling things you don’t need
- Negotiating a pay raise with your current employer
- Changing jobs for better pay
- Taking on a part-time or second job
- Starting a side hustle
- Starting a small business
Have you made changes to how you spend and/or save your money due to rising inflation? Where have you noticed the inflation impact the most when it comes to your money? Share your story with us in the comments below!