Wondering exactly how big a bite inflation is taking out of your budget right now?
It’s a nice, round number: $460 a month in extra U.S. household spending, Moody's Analytics economists say.
The number comes from Moody’s senior economist Ryan Sweet, who tracked the price of U.S. goods and services in May 2022 against similar prices in the same month in 2018 and 2019.
Right now, the average inflation rate stands at 8.5% on a year-to-year basis, compared with an average of 2.1% in 2018 and 2019, Moody’s reported.
The difference, Moody’s noted, amounted an extra $460 a month “pure cost” in U.S. household spending versus the 2018-2019 time frame.
The report comes as U.S. household debt rose to a record $16.5 trillion in the second quarter, according to the U.S. Federal Reserve. That debt load was driven by more than $200 billion in excess household mortgage debt, coupled with a significant rise in debt from consumer credit cards and auto loans.
“Consumers are spending more money every month on the same basic necessities and discretionary purchases they were paying for just one year ago,” said Andrea Woroch, consumer money-saving expert at www.AndreaWoroch.com.
“Although some people have reduced shopping, many have not made big changes to their spending habits and, as a result, are spending more and taking on debt because everything is costing more.”
Frustrated Consumers
Adding fuel to the household-debt fire is pent-up demand for travel, dining out and shopping in general as the pandemic has eased.
“Some people just weren't willing to stay home any longer even if it meant taking on debt to go away or get back to their prepandemic lifestyle,” Woroch said.
“However, it's necessary to review your budget and monthly spending and make tweaks to avoid taking on debt. It's possible to still enjoy some of the luxuries you're not willing to give up, like travel and dining out, without taking on debt as long as you budget, save and look for deals and savings.”
“The additional expenses have also forced Americans to dive into their savings to make both ends meet,” said Kunal Sawhney, chief executive of Kalkine Group, an international equity market research firm.
“Even after experiencing high inflation for 13 months in a row, the U.S. government recently claimed that it represents transitory factors.”
The White House has also continued to trust the U.S. economy’s strength.
“The Biden administration maintains that the GDP growth rates have doubled over the two successive quarters with controlled unemployment, household finances, and high consumer spending,” Sawhney said.
Action Steps to Curb Spending
What tips and strategies can hard-hit Americans deploy to cut back and not overspend while still paying bills and putting food on the table?
Woroch has some ideas.
Rebalance your budget. Updating your budget and spending plan is necessary in times of change.
“Inflation is one of those triggers that requires you to take a step back and reassess what you're spending money on,” Woroch said.
“This doesn't mean you have to make huge sacrifices. But paying attention to what you're spending on can help you pinpoint wasteful and unnecessary spending on things that you really don't need or that bring you much joy.”
Track everything. When budgeting, don't overlook the need to actually track your spending and purchases.
“It's one thing to set a budget and a whole other to actually stick to it,” Woroch noted. “Use an app like Pocket Guard to stay on top of all your expenses, monthly bills and daily purchases. The app will even alert you when you're about to cover over in any one category, so you can put your spending in check and make better buying decisions.”
Finesse your monthly bills. Don't assume your monthly bills are set in stone.
“You could potentially save on various necessities by doing a little research, negotiating, or simply by switching providers,” Woroch said.
“For instance, increase your auto or home insurance deductible to score 5 to 20% discount on your annual/monthly premium. Paying up front and bundling services will also reduce your monthly payments.“
Downgrade your data plan. Most people waste money on unnecessary unlimited data plans. So review your usage and downgrade to a lower-tiered and cheaper data plan, Woroch added.
“Or consider switching to an online-only wireless provider like Mint Mobile, which offers bulk savings when you pay up front for service, bringing their 12-month plan to just $15 per month for talk, text, and data,” she said.
“This is a huge area of potential savings that most Americans could benefit from without sacrificing service.”
Pay down high-interest debt. High-interest credit-card debt can eat away at your monthly budget, so focus on paying that debt down to free up cash at the grocery store and gas station.
“The easiest and cheapest way to do this is to transfer your balance to a zero percent balance transfer card which waives interest for 12 to 21 months, giving you more time to make smaller payments without interest fees piling on while we ride out this tough economic time,” Woroch noted.
“Otherwise, use this time to make bigger payments that pay down the principal balance faster and save you more over time so you get out of debt for good."
"Review and compare balance transfer cards at sites like www.CardRates.com to find the best one for your needs and credit rating," she added.
