Why We’re Living Paycheck To Paycheck

It’s almost a cliché to say that Americans are living paycheck to paycheck, but, like you, I’ve noticed that a dollar doesn’t seem to go as far as it used to. Utility payments and groceries cost much more these days, and we all know about gas prices. As prices inch up, it’s becoming increasingly difficult to stretch our earnings. If our earnings don’t increase, then we have no choice but to cut expenses, some of which may be unnecessary, and some of which may be difficult to live with.

Unfortunately, a new survey indicates things could get worse before they get better. The National Association for Business Economics recently released a report that revised the near-term growth projections downward for 2011.  Some of the reasons cited for this adjustment included uncertainty about federal economic policies, ongoing worries about the housing market, and rising commodity prices. The first two concerns are logical. There’s been a lot of talk about the federal debt, and the housing market may have several years to go before if fully recovers. However, commodity prices could be the largest issue affecting our near-term growth. Commodities are raw materials or agricultural products. Granted, some commodities, like steel or copper, may not be a part of your daily expenses, but some are – for instance, the gasoline you put in your car. Agricultural commodities include items like wheat, livestock, and vegetables – the food we put on our table. When the costs for commodities that affect our day-to-day lives increase, our budget feels the impact.

Just like we recommend here atCambridge, I review my budget at least once every quarter. Over the course of those three months I keep a record of my expenses. I track how much I’m committing to my financial obligations, groceries, and utilities – the normal stuff. It was this process – not the daily newspaper headlines – that made me realize just how much my cost of living was going up. Unfortunately, even though my expenses are increasing, I’m not earning any more – most of us aren’t. Our economy is in a very difficult cycle.  I sat down with my budget and made the necessary adjustments to accommodate the higher costs. That’s something we all have to do, and it only takes a few minutes.

Afterward, I did some digging around to see just how more expensive it is to live since I was born in 1971. Our expenses are tied to something referred to as purchasing power. Purchasing power is the amount of goods or services you can buy with a unit of currency. Over time, this power typically decreases as inflation rises. Inflation is a rise in the general level of prices for goods or services. To keep it simple, I looked at the purchasing power of $100 in 1971. I discovered that the same amount of goods or services today would cost me $543.70. Of course, the average salary has risen since 1971, but when adjusted for inflation, incomes have remained relatively flat.

Over the next year, the rise in consumer goods won’t be so dramatic, but again, every little bit hurts. According to the National Association for Business Economics, the cost of living will likely increase by 3% by the end of 2011, up from the previously forecasted 1.8%. As a result, it’s predicted that consumer spending, which accounts for about 70% of our economic activity, will only increase by 2.8 percent this year – a number that was also forecasted to be higher.

As with anything in life, a proper plan will help you get through some of the most difficult times; therefore, it’s important that we all begin to take a closer look at our expenses. If you need help implementing a budget to account for the rise in energy, food, or fuel, contact one of the many non-profit credit counseling agencies, such as Cambridge, to talk with a certified financial counselor. Although the future looks stressful from today’s vantage point, a little preparation can help make things a lot easier on your wallet.

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About Cambridge Credit Counseling Corp.

Cambridge Credit Counseling Corp. offers its financial education to consumers throughout the United States. Our experienced staff is dedicated to helping people understand and manage their debts by providing personalized attention and a free, comprehensive review of each consumer’s financial situation. It is our objective that, as consumers become more educated about debt and the impact it can have on their lives, they can apply this knowledge to successfully manage their finances in the future.

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