Paychecks Falling Behind Inflation? Here's How To Adjust Your Budget
If you’ve been waiting for inflation to ease and consumer prices to return to normal, you’ll have to wait a little longer.
The latest U.S. inflation report, released on Oct. 14, showed that prices are moving higher rather than the other way around. Meanwhile, wages aren’t rising fast enough to keep pace. It all adds up to a challenging environment for Americans on a tight budget.
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The good news is, you can take steps to weather the inflation storm until it finally passes. When your paycheck falls behind inflation, here’s how to adjust your budget.
Inflation Outpaces Pay – Again
The overall inflation rate for August rose 0.6% on a monthly basis and 3.7% year-over-year, according to new data from the U.S. Bureau of Labor Statistics (BLS). Both numbers represented increases from the July numbers, while the annual gain came in higher than consensus economist estimates, as reported by CNBC.
The report was “worse than expected” as core inflation accelerated to its highest point since June, according to Bill Adams, chief U.S. economist at Fifth Third Commercial Bank.
“Price increases were widespread across the core CPI basket, affecting a range of durable goods, nondurables and services,” Adams wrote in an email note shared with MoneyLion.
Indeed, prices continue to move higher across spending categories that have a direction impact on household budgets. Here’s a look at some of the year-over-year price increases in August:
Gasoline: 34.2%
Electricity: 4.4%
Food away from home: 3.5%
Shelter: 3.2%
Transportation services: 2.7%
Medical care services: 2.5%
Food at home: 1.8%
The inflation news came on the heels of a separate BLS report on employment and pay trends.
That report showed that in September, average hourly earnings for all employees on private non-farm payrolls rose 0.1% from the previous month to $37.81. For the full year, average hourly earnings climbed 3.0%. Both numbers trailed the latest inflation gains of 0.6% and 3.7%, respectively.
It was the third straight month paychecks didn’t keep pace with rising prices, USA Today reported.
How To Adjust Your Budget
When prices rise higher than wages, it’s time to rethink your budget. Here are some ways to do that.
Cut Back on Non-Essentials
This is the most straightforward way to adjust your budget when pay raises don’t keep up with inflation. A blog from the UW Credit Union recommends cutting these expenses first:
Coffee: Instead of spending several dollars a day on your favorite designer coffee from the local barista, make it at home or drink the free coffee at the office.
Takeout and dining out: You can do your budget a huge favor by making your meals at home instead of spending it at local restaurants or takeout and delivery joints. This applies to breakfast, lunch and dinner.
Cable and streaming services: UW Credit Union recommends choosing one or two services you use regularly and ditching the rest.
Cars: If you can get by with fewer cars – or even live without one – you’ll save a ton of money on car payments, gas, maintenance and repairs.
Cell phones: Instead of upgrading your plan, contact your provider and try to negotiate a lower bill.
Reduce Energy Expenses
Lowering your energy use is another way to trim your budget and save money. M&T Bank offers these suggestions:
Lower your thermostat a few degrees during the cold months and raise it a few degrees during the warm months.
Only run full loads of laundry rather than smaller loads.
Reduce your shower time.
Explore home improvements that can lower energy use and costs. These might include installing LED light bulbs and low-flow showerheads, and sealing and insulating heating ducts.
Lower Insurance Costs
To get lower insurance rates, M&T Bank recommends asking your insurers about discounts you might qualify for. Options include auto insurance breaks for student drivers with good grades and homeowners insurance premium reductions if you have a security system. Another good idea is to explore discounts for bundling multiple policies such as home and auto.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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