Soaring prices are making it hard for many Americans to afford expenses each month. Costs are rising for nearly every major expense from housing and food to medical care. Employee wages aren’t keeping up. Having the money that’s coming in each month going out just as fast is becoming increasingly common.
Due to high inflation, the typical American household spent $445 more in September to buy the same goods and services as they did a year ago, according to an estimate from Moody’s Analytics.
A little less than two-thirds, 63%, of consumers were living paycheck to paycheck in September, up from 57% a year ago, according to a new survey from LendingClub and PYMNTS.com. In the last year, wages have increased by 4.9%, as inflation jumped by over 8.2%, according to the same report.
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Many people are having to face tough choices to keep from busting their budgets. Yet, “the more consumers shop judiciously, the more difficult it will be for businesses to raise their prices aggressively,” said Mark Zandi, chief economist at Moody’s Analytics.
Here are some strategies that could help stretch your paycheck.
Be strategic when spending
To navigate higher inflation, you need to be a savvy consumer. Start by tracking your spending and try to spend less or less often.
- Always have a shopping list. When it comes to essentials like food, you may have already cut out dining out. But eating in is also more costly than a year ago. When shopping for food or other essential items, always have a list. This causes you to have to plan what you’ll buy before you spend.
- Delay purchases a day or two. Take time to look for the best deals and promotions, and gather coupons before you buy. Also, waiting a couple of days may cause you to realize that item you wanted wasn’t an essential purchase.
A person shops in a supermarket as inflation affected consumer prices in New York City, June 10, 2022.
Andrew Kelly | Reuters
- Cancel a monthly subscription. After you set up a monthly subscription — for cable TV or streaming services, publications, gym memberships, or weight loss programs — you probably don’t think about it, but that money keeps coming out of your bank account or gets charged to your credit card. Make it stop! Take a close look at all of your subscriptions, then cut out what you don’t really need.
Lower your housing expenses
Housing is likely your biggest monthly expense, and you might be shelling out more than is ideal. Many financial experts recommend spending no more than 30% on rent, while lenders like to see you spend 28% or less of your gross monthly income on housing expenses in order to get a mortgage.
After almost two years of record-low mortgage rates, the lending landscape has changed dramatically. The average rate on a 30-year fixed-rate mortgage jumped from an average 4.14% in March to 6.92% in October, according to Bankrate. So refinancing may not be a viable option now.
- Reduce electricity use. Shop around to see if there are utility providers that offer lower rates. Also little changes can add up to big savings. Use energy-efficient lightbulbs. Don’t run the dishwasher without a full load. Don’t leave the computer running. Turn down the thermostat and/or install a programmable thermostat.
For homeowners:
- Rent out a room in your house. Check state laws and with the local housing authority to understand any restrictions and obligations. Homeowners associations can also have rules limiting rentals, so understand those policies, too. Contact your homeowners insurance to make sure you can rent and what is covered.
- Try to get rid of private mortgage insurance. If you put less than 20% when you bought your house, PMI is required. Once you have 20% equity, it can be removed. If home values have risen in your area, you may have enough equity to reach that 20% threshold. If so, ask your lender to cancel your PMI. They must comply if you are in good standing and haven’t missed any mortgage payments.
For renters:
- Consider getting a roommate.
- Negotiate for a lower rent. If you don’t ask, you won’t get it. Talk to your landlord. Be honest about your financial situation and suggest a monthly payment you can afford. Offer to do repairs yourself for a break in the rent. Extend your lease at the current rate now, if rents in your area are expected to continue to rise.
The more consumers shop judiciously, the more difficult it will be for businesses to raise their prices aggressively.
Mark Zandi
chief economist at Moody’s Analytics
Reduce credit card debt
Interest rates are at record highs and climbing. The average annual percentage rate (APR) for someone who carries a balance on a credit card is 18.43%, according to LendingTree. Rates offered on new cards is even higher, at 22.21%, the highest since LendingTree began tracking in 2019.
- Switch to 0% balance transfer cards: Interest-free periods as long as 21 months are still available, while most offers last 12 to 15 months. Just be careful about fees, which can range from 3-5% of the amount of money being transferred. “If you have good enough credit to get one, it’s the best weapon against credit card debt,” said Matt Schulz, chief credit analyst at Lending Tree.
- Ask your credit card issuer for lower rate: About 70% of people said they asked for a lower interest rate on their credit card got it, according to an April 2022 survey by Lending Tree. The average reduction was 7 percentage points.
- Consider debt consolidation: Making one monthly payment at a lower interest rate can help you pay off your debt faster. Talk to a credit counselor from a non-profit agency for free about helping you come up with a debt consolidation or debt management plan. Find a counselor through the National Foundation for Credit Counseling at NFCC.org.
Leverage the upside of higher interest rates
If you have any extra money left over after paying for your essential household expenses, make sure to pay yourself. You can make that money work for you with a high interest savings account. The average rate on top-earning online savings accounts is 2.34%, according to DepositAccounts.com, and some of rates are as much as 3%. So if you have any extra cash, stash it away.
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