family budget in inflation

Why Your Family Budget Feels Tighter Than It Did 4 Years Ago

If you’ve noticed that your family budget feels a bit tighter than it did four years ago, you are not alone. Many families across the United States are experiencing financial strain due to rising costs and stagnant wages. In this article, we will explore the key factors that have contributed to the tightening of family budgets, using the latest data from the 2023 Bureau of Labor Statistics (BLS) Consumer Expenditures Report. Let’s dive into why your budget feels more strained and how you can adapt.

  • The Rising Cost of Living

One of the most immediate reasons your family budget feels tighter is the general rise in the cost of living. Over the past few years, inflation has steadily increased, pushing up the prices of everyday goods and services. While inflation has cooled somewhat recently, many families are still grappling with the effects of these price hikes. According to the 2023 Bureau of Labor Statistics report, costs for essential items like food, housing, and transportation rose considerably over the past year. This means your dollar doesn’t stretch as far as it used to, especially when you’re trying to cover all the basics.

Take food, for example. Grocery prices have soared in recent years, making it hard to keep up with a growing family’s needs. This increase in grocery prices means families have to dedicate more of their budget to basic sustenance. Unfortunately, it’s not just food. Household items, utilities, and even healthcare have seen steep price increases, forcing families to prioritize essentials while cutting back on less urgent expenses.

  • Housing:

For many families, housing is the largest monthly expense, and in recent years, it’s only gotten more expensive. Whether you’re renting or paying a mortgage, the costs associated with housing have increased significantly. According to the 2023 Bureau of Labor Statistics report, rent prices have risen significantly over the past several years, and housing costs continue to be a major financial strain for many households.

For homeowners, the situation is not much better. The cost of purchasing a home has surged due to higher home prices and rising mortgage interest rates. As a result, many families have found it difficult to buy homes, even as they face increasing rental costs.

  • Transportation:

Another significant factor contributing to tighter family budgets is the rise in transportation costs. Whether it’s commuting to work or running errands, many families rely on their vehicles to get by. However, gas prices have fluctuated wildly in recent years, with some periods of sharp increases. The BLS 2023 report noted a significant spike in fuel prices, contributing to a growing transportation cost burden. These rising fuel prices are compounded by the increased costs of vehicle maintenance, including parts and repairs. For families who depend on personal transportation, these costs quickly add up, leaving less money for other aspects of daily life.

For families in areas without reliable public transportation, the strain is even more pronounced. With no other affordable options, they are forced to bear the rising transportation costs.

  • Healthcare Costs:

Healthcare is another category where families are seeing increased costs. Whether it’s the premiums for health insurance, out-of-pocket expenses, or prescription costs, families are being forced to allocate more of their budget to healthcare.

For many, high-deductible health plans and rising premiums are a significant burden. These expenses often increase faster than wages, leaving families with less financial freedom. This financial strain is particularly felt by families with young children or older members who require regular medical attention. For some, medical debt is becoming an unavoidable reality.

  • Wages vs. Inflation:

While expenses have steadily risen, wages have not kept pace. In the BLS 2023 report, it was highlighted that wage growth in 2022 didn’t keep up with inflation, which means that even though you may be earning more, it feels like your paycheck is going nowhere. In real terms, your family’s purchasing power is weaker than it was just a few years ago.

This growing gap between wages and inflation creates a financial pinch for families trying to maintain their standard of living. It makes it harder to save for the future, pay down debt, or even afford basic needs without going into debt.

  • The Role of Debt and how it destroys your family budget:

As family budgets tighten, many households are turning to credit cards or personal loans to fill the gaps. This cycle of debt can quickly snowball, especially when interest rates are high, as they are in today’s economic climate. Credit card debt, in particular, can quickly accumulate, making it even harder to make ends meet each month.

If you’ve been relying on credit to cover everyday expenses, it may feel like your budget is permanently stretched thin. Paying off high-interest debt can become a significant challenge, leaving families with little financial wiggle room. Optimizing your debt right now, and eliminating it over time is a fundamental part of a proper financial plan, and it is a vital part of what we help our clients achieve.

Deficit Spending and Its Impact on Family Budget:

Economist Milton Friedman once famously said that inflation is. “first, and always a monetary issue.” What he meant is that if an economy sees broad price increases across most of our regular purchases, the problem isn’t coming from supply problems (like a bad growing season might affect the yield of coffee harvests, causing a temporary shortage in supply). When prices rise on everything, all at once, the problem is too many dollars circulating in our economy.

Since the Covid-19 pandemic and the shutdowns that resulted, many governments of the world went dramatically into debt (invented money) and gave that money out in the form of stimulus checks, forgivable business loans, and other forms of economic “steroids”, called quantitative easing. Suddenly, without being created through productive means, trillions of new dollars were flooded into the economy that still only had the same number of houses, cars, boxes of cereal, and tennis shoes as it did before Covid. Many more dollars chasing the same number of products means the value of each of those dollars declines. In short, the more dollars are out there in the economy, the less they will buy.

The problem for working-income families, and those on fixed incomes like retirees, is that your wages didn’t rise as fast as prices did. Very wealthy individuals were less affected because they own significant assets that actually go up in value during periods of inflation. Also, wealthy families tend to receive more investment income and don’t rely as much upon a monthly paycheck to meet their needs. As a result, they often don’t struggle under the weight of inflation nearly as much as the average American household, which must grapple with stagnating wages, mounting debt, and soaring living costs.

Many politicians like to make promises of “free” things in order to curry favor at election time, but those “free” items always come with a cost attached: the money has to come from somewhere. Often, especially in the last 30 years, that money is simply invented out of thin air and dropped unproductively into the economy.

The Role of Big Tech and Economic Disruption

Another major factor contributing to the strain on family budgets is the role of major tech companies and their monopolistic control over key sectors of the economy. Giants like Amazon, Google, and Apple wield enormous economic power, not just because of their vast wealth, but because of their ability to disrupt traditional industries. While many consumers benefit from lower prices on goods and services, the long-term impact on family budgets is far more insidious.

“Big tech” has drastically shifted the labor market, with automation and artificial intelligence gradually replacing human workers across multiple industries. While these technological advancements lead to more convenience and lower costs for consumers in some instances, they also result in job displacement, particularly for middle-skill workers in manufacturing, retail, and customer service sectors. The result? Families are left to cope with unemployment or the pressure of transitioning to new, often lower-paying, fields. Many individuals who lose jobs to automation face the financial instability of finding work in a rapidly changing economy, while the companies responsible for these job losses see their profits soar.

Other Hidden Factors Contributing to Your Tight Family Budget

While the rising costs of food, housing, and transportation are the most obvious reasons your family budget feels tighter, there are other underlying factors at play.

  1. Lifestyle Inflation: As your income increases, so does your spending. This phenomenon, known as lifestyle inflation, happens when you increase your spending in proportion to your income. While it’s natural to want to upgrade your lifestyle, it can lead to tighter budgets if you’re not careful.

  2. Emergencies: Unexpected events—such as home repairs, medical emergencies, or car accidents can throw your budget off track. Without an emergency fund, families are left scrambling to cover these unexpected expenses, which can contribute to financial strain.

  3. Education Costs: For families with children, education costs whether for daycare, school supplies, or tuition, can take a significant chunk out of the budget. These costs have also risen in recent years, contributing to the overall financial squeeze.

How to Adapt Your Family Budget

Given all these rising expenses, it’s clear that families need to be more strategic when managing their finances. Here are a few steps families can take to help ease the pressure:

  1. Track Your Spending: The first step to adapting your budget is understanding where your money is going. Use budgeting tools or apps to track every dollar and find areas where you can cut back.

  2. Prioritize Needs Over Wants: It’s important to focus your spending on essential needs like housing, food, and healthcare. Cut back on discretionary spending, such as entertainment or dining out, to free up more money for necessities.

  3. Save for Emergencies: Building an emergency fund can provide a safety net when unexpected costs arise. Even setting aside a small amount each month can help protect you from financial setbacks.

  4. Pay Down Debt: High-interest debt, like credit card balances, can quickly drain your budget. Focus on paying down debt systematically to reduce monthly payments and free up funds for other expenses.

  5. Look for Alternative Income Sources: Consider side gigs or freelance work to supplement your family’s income. This can help ease the strain of rising expenses.

The Future: Is There Hope for Relief?

The looming question for many families is whether any relief is in sight. Political and economic analysts are split on the future, as the U.S. economy faces deep structural challenges. Political leaders are divided on the best course of action where some argue for a more aggressive social safety net, while others believe that tax cuts and deregulation will stimulate the economy and ease financial pressures. However, what’s clear is that without comprehensive and forward-thinking policy changes, the trend of tighter family budgets will likely continue.

This ongoing financial squeeze makes it harder for families to plan for the future, cover unexpected expenses, or even afford day-to-day necessities without falling into debt. Without the right financial strategy, small setbacks can quickly spiral into long-term financial hardship. That’s why having a solid plan in place is more important than ever.

At nVest Advisors, we help families navigate these challenges by creating tailored financial strategies that align with their needs and goals. Whether you need help managing debt, building savings, or planning for the future, we’re here to guide you. Book a meeting with us today and take the first step toward a more secure financial future.