Inflation vs. Debt: Where to Cut Spending

As the cost of groceries and other necessities continues to rise faster than the average wage, it can impact even the most detailed household budget. If you’re tracking your spending, you know how much everyday necessities have increased in the last few years. These needs compete with your ability to pay off debt. Let’s look at how to manage the rising costs of goods versus the debt you owe.

With inflation for goods holding at over 3% most months, recent years have created the perfect storm of difficulty for the average consumer. Shortages on computer components needed for cars and personal computers, supply chain shortages, and the massive disruption of the COVID-19 pandemic have all shaken the economy – and your household isn’t alone in feeling the effects. On top of that, the job market has cooled while the increases in housing costs remain high.

Many Americans face the following challenge: the costs of necessities like food and clothing continue to increase, they carry some high-interest debt (often in credit cards or student loans), and their wage doesn’t increase at all, or only increases modestly. Let’s break apart these issues one at a time to see where you can re-budget for your household.

Rebudgeting High Food Costs

Just a few years ago, you might have been able to find a can of Campbell’s soup for under a dollar. A staple of households across the economic spectrum, the same can of soup can cost double in affluent areas. Animal illnesses, climate change events such as wildfires, and the increasing cost of labor in the industry impact food costs. The prices of meat, fish, chicken, and eggs remain unstable due to these issues. Here’s how to cope:

Depending on your household situation, it might be easier to budget if you use a meal kit service or budget to eat out more often due to the rising cost of groceries. Yes, it’s true – for solo residents, it’s usually less of a ‘splurge’ to have a meal out, and buying the ingredients for a meal can cost significantly more than it does to simply buy a meal at a restaurant like Chipotle.

Ultimately, you’ll always want to supplement with the basics when it comes to groceries, but past assumptions about cooking at home to save money aren’t always true, especially for a small household. Rebudget by taking a look at what you spend on groceries versus how much it costs to add a meal kit (at a fixed price) or eat out a couple of times a week. Pre-pandemic standards do not apply.

Managing High-Interest Household Debt

Have you ever gotten hit with a high interest rate charge on a credit card? The federal government doesn’t regulate high-interest charges for banks that offer credit cards, which means many consumers with fair or even good credit ratings end up with cards charging a 25% interest rate. While you can avoid that by paying it off monthly, that’s not the reality for a majority of Americans, some of whom put emergency expenses on credit cards. In a high-inflation time, over 60 percent of Americans are still living paycheck to paycheck, which means overflow expenses end up on credit cards.

Because high interest rates are so common, when you create a budgeting spreadsheet to pay down your credit cards, it’s important to consider the interest as a factor. You can use the snowball or avalanche methods to pay down debt, but don’t just look at total balance: consider the interest you’ll continue to accrue as you pay the debt down. From here, you can make smarter budgeting decisions when it comes to paying down your cards.

Stagnant Wage Problems

A big problem for many individual families is that the rising cost of goods has stretched household budgets, while wages remain stagnant. To get a major wage increase, you usually have to change jobs – which isn’t easy to do in a slowing job market affected by world crises, automation, and more. For many, it makes sense to sit tight in a current job – but that often means little to no wage increase as the cost of goods continues to rise.

Unfortunately, income inequality and a lack of collective bargaining can also lead to economic instability. How have working Americans compensated for this? Many have started their businesses or joined the gig economy in addition to working a traditional day job or retail role. Get creative, pick something that can’t be easily automated, and monetize it on your own, complete with your business phone number.

Consider what most people or businesses wouldn’t want to automate, and what works best with your current job’s hours and your obligations to your family and community. For example, the dog walking services industry increased by over 4 percent in 2022, and it isn’t likely humans will want robots walking their pups anytime soon.

With the looming presence of inflation, unregulated credit card interest rates, and stagnant wages, households need to divorce themselves from the notion that the traditional still works. Sometimes it’s cheaper to eat out or invest in a meal kit; sometimes it’s better to pay off the high interest card before the low-balance card; and sometimes you need to get creative about making more cash. Households who remain fluid in a volatile time are most likely to succeed with re-budgeting.

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