The first day back to work in January, I thought my wife had shrunk my dry-clean-only pants in the dryer. She hadn’t; I guess I had too many peanut butter balls between Christmas and New Year’s Day. The headlines say inflation is dropping, but most Americans still feel the pinch as everyday expenses wreck their budgets.
The pinch is coming from two different problems: inflation and what is called “Lifestyle Creep.” Lifestyle Creep is where a person either makes more money or receives more money (such as the pandemic stimulus) and starts making a habit of spending more money.
Most Americans had extra cash after 2020-2021 thanks to the Covid era of government stimulus and from being unable to spend money on restaurants and travel, which led to the lifestyle creeping of expenses. Taking a trip here, adding a couple of pieces of furniture there, and, of course, subscribing to a few more streaming services with their annoying monthly bill. Before we know it, inflation with our normal life expenses starts adding up, and our monthly budget is suddenly tight.
The higher prices from inflation aren’t helping any. Take buying home or car insurance, for example. Shopping for insurance has never been fun, but it’s becoming more frustrating than ever because of higher premiums and less coverage. As of November 2023, car insurance rates alone are almost 20% higher than a year ago. Both inflation and some of our spending choices have made our budgets a little tight around the middle.
January is the perfect time to reassess your financial situation because you have year-end statements to study. This can help you get a handle on where your extra money went.
Total up what you spent last year on nonessential items like restaurants, vacations, and streaming subscriptions. Next, nail down what you spend on essentials, like rent/mortgage payments, utilities, vehicle expenses, and grocery costs. These are generally non-negotiable expenses. Look at your paycheck, compare it to these expenses, and reevaluate the nonessential expenses with what’s left.
This is a judge-free zone. If you want to eat pork and beans two nights a month so you can keep binge-watching your favorite show, I say go for it. Just do it consciously, and don’t let your bills sneak up on you and keep you from hitting your savings and investing goals.
Hopefully, some of our everyday expenses will come down, and maybe TV will get easier, too. But until they do, let’s focus on the essential expenses that allow us to reach our investment goals and eat a few more salads.
Have a blessed week!
Dr. Richard Baker, AIF®, is the founder and executive wealth advisor at Fervent Wealth Management.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.
The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.
Lifestyle creep
Stimulus
https://www.wsj.com/articles/once-flush-savings-accounts-are-starting-to-run-dry-11675691637
inflation
https://www.wsj.com/articles/inflation-tracker-cpi-data-prices-11657717467
insurance rates
