People who pay the bills might take notice, but Americans as a whole don’t seem to pay much attention to the cost of living.
The cost of living is often an abstract concept that heads of household admit they need to address but often don’t.
What is the cost of living? It is the total amount of cash a household needs to cover the basics of home, occupation, and lifestyle.
Any cost-of-living list might include a mortgage or rent payments, a car loan, healthcare costs, and food and utilities.
Underneath the surface, the cost of living can also include additional household expenses such as filling a gas tank, paying for a babysitter, and a round of golf at the local public course, among other daily expenses.
Cost of living indicators are also used by private and public organizations for the greater good.
Employers use cost-of-living indices to set wages, while government organizations use them to assess the need for measures such as annual adjustments to Social Security benefits. Credit Summit, in a new report on the cost of living in the United States.
“These measures are also being used by people considering resettlement, particularly for employment reasons.”
What makes up the bulk of the cost of living spending?
The Credit Summit report indicated that the average annual cost of living in 2020 was $61,334. (The cost of living in the US varies from state to state. It is much higher in California, for example, than in Mississippi.)
Financial experts say the average cost of living looks much higher heading into 2023.
“Since the beginning of 2021, energy prices, such as electricity, gas and other fuels, have been the main driver of the price hike inflationsaid Lyle Solomon, lead attorney at Oak View Law Group in Jersey City, NJ
“Many Americans have been saved during the pandemic because of financial support and the fact that covid-19 has shut down businesses and caused people to stay home instead of spending money on services they previously used.”
But this financial cushion diminishes as the cost of consumer goods and services increases due to inflation, global supply chain problems, and rising interest rates.
“Particularly because of high inflation, Americans’ savings won’t arrive until 2022,” Solomon said. “In addition to affecting the value of savings accounts for those who have saved for an emergency or retirement fund, price hikes can be a more significant irritant.”
Credit Summit’s Cost of Living report identifies five particularly steep expenses, and cites their average annual costs borne by American households:
Housing-related expenses (other than rent or mortgage): $2,838
These prices will rise unless inflation is curbed.
Inflation in the United States was 13th out of 44 countries analyzed in the first quarter of this year, averaging 8.6%, according to US Bureau of Labor Statistics.
“Moreover, in the United States, the inflation rate in the first quarter was nearly four times higher than the same period in 2020,” the Credit Summit report noted.
The inflation rate in the United States is currently 7.7% annually.
Traditionally expensive items such as housing, transportation, and food remain in the top three expenditures for most households in 2022.
“These three categories can eat up a significant portion of your earnings,” Solomon said. “Housing in particular is becoming increasingly expensive due to inflation, which is the most serious issue for many American families.”
Transportation is cheaper than housing, but high gas prices have also strained people’s finances. Energy prices rose significantly in 2022 before easing somewhat in November.
Food costs are rising, and this is a problem for low-income American families.
“Food costs in the United States are not really that expensive,” Solomon noted. However, it can be a major problem for low-income families. If you don’t make a lot of money, eating out in addition to healthy food can make up a large part of a family’s food budget.”
Get support for the cost of living
Americans struggling to keep up with the cost of living need to take a step back, assess the situation, and use the financial management tools available to address these issues.
“It is important for families to set a budget based on monthly income,” advised Suleiman. “Keeping track of your expenses is an effective way to adjust your spending habits, but it can become stressful if you have a large number of payments to make.”
It’s also a good idea to use mobile personal finance apps like Mint, Personal Capital, or Goodbudget to get stronger control over your income and spending.
“With the right app, you can make better financial plans and save more money for what’s important,” Solomon said.
Heads of household should also focus on needs versus needs to control the cost of living.
“You need to feed yourself[buying groceries]but going out to eat is a need,” said founder Jay Zygmont at fund management firm Childfree Wealth in Water Valley, Miss. A beautiful home is a need.”
If these expensive items are holding you back, make an equally big decision to get them under control.
“It may be time to downsize on an expensive house or rent something further out of town, especially if you work remotely,” Zygmunt told TheStreet. “If you’re married or living together as partners and work remotely, it might be time to cut back on the cost of one car.”
“The bottom line is that everyone should be on a budget and be mindful of their spending,” Zygmunt added.
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