High Inflation Has Americans in the Red

Expenses Overtake Income

Over the past two years, inflation rose to record highs. Annual inflation rates reached 7% and 6.5% in 2021 and 2022 respectively, peaking at numbers not seen in decades. Still, despite this, consumer spending remained relatively unchanged — until now.

In December, US consumer spending fell 4.3%, according to a news survey from Morning Consult. And, notably, over 1 in 5 respondents admit to spending more than they earn each month. These stats indicate that the high rates of inflation over the past two years may have caught up to more Americans, causing them to feel the pinch.

What This Means

Despite inflation, American consumer spending remained resilient in 2021 and early 2022. In some cases, this may have been due to the fact that families could lean on savings to supplement increasing costs. However, with more consumers now in the red, it appears more families may have exhausted their savings, and paychecks have not risen enough to make up the difference.

Budgeting Tips

Fortunately, there are a variety of strategies you can use to offset inflation’s effect on your bottom line. A good place to start is to look at both your long-term and short-term financial plans, as well as your everyday spending habits, to see where you might be able to make adjustments.

Considering energy prices are a major driver of inflation, it could be worthwhile to look at how much energy you are using at home — or on the road — and find ways to curb costs as much as possible. According to the U.S. Department of Energy, some ways to reduce energy use include sealing air leaks around windows and doors, installing energy-efficient light bulbs in your home, or carpooling to share fuel costs.

Another strategy is to look for ways to reduce your car insurance. You can do this by raising your deductible resulting in a lower monthly payment, negotiating a safe driving discount, or shopping around for cheaper alternatives.

Finally, you can save on groceries by shopping at discount grocers, or by leveraging cheaper private label products at larger stores. Both options cut down on expenses without requiring significant lifestyle changes.

Even after inflation cools, there’s no way to accurately predict how long the effects will last. Learning how to budget when finances are tight can make you rethink the way you spend — and potentially help you find new ways to save.

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