With the worst of the pandemic behind us (hopefully!), we're all eager to get on with our lives and break free. But rising costs are prohibiting many Americans from escaping the grind. Although the average household income has gone up, it's not keeping up with the pace of inflation.
Although the pandemic temporarily slashed interest rates and oil prices, the economy is coming back strong. Mortgage rates, credit card rates, auto loan rates, and oil prices have all rebounded.
Oil prices don’t just result in rising costs at the gas pump. Oil is an input cost for many downstream items including plastic. There’s also a knock-on effect in other industries when oil prices rise, such as a rise in demand for biofuels. As demand for these alternative fuels increases, crop prices are forced upwards, making food even less affordable.
Meanwhile, there are headlines saying that people are “rushing to buy homes” before mortgage rates rise even further. Come on folks. This is a deja vu moment.
Some say the rise in interest rates and inputs costs are simply a reflection of strong demand. There’s a very big truth to this as everything is rational. But strong demand eventually wanes once prices go too far.
Rising Costs In America
Just take a look at this graph which shows a wide range of rising costs Americans are facing. Hospital services costs are out the wazoo. Meanwhile college tuition continues to rise even with the ever increasing amount of free education on the internet.
You can see an upward trend in average hourly wages, which is great, but will it be sustainable to keep up with healthcare? When you're young and healthy, you may brush off the rising costs of medical care. But trust me they can come out to bite you when you least expect. Getting older is not easy on the body, mind, or wallet.
Healthcare premiums are ridiculous if you don't have employer subsidized coverage. For example, in 2021, my family pays $2,380 a month for health insurance for a family of four. Ouch.
Don't Give Up, Get Smarter
It can feel discouraging to see rising costs wherever you look. I remember when I could fill up an entire cart at the grocery store for $100. Now that same cart easily costs $300-350 at a store like Safeway or $350-400 at Whole Foods. It's nuts.
So, how do you combat rising costs? You don't give up, you get smarter. Here are just a few ways you can get smarter with your money.
- Know your worth and ask for a raise already. Don't expect one to fall in your lap.
- Refinance your debt to take advantage of lower rates and save money.
- Create passive income streams so your money works for you.
- Do your due diligence before making any large purchases.
- For example, use these 3 tips that homebuyers forget to consider.
- Take advantage of free wealth management tools.
- Lock in low rates for life insurance before you turn 30.
- Instead of quitting a job with nothing, negotiate a severance instead and walk away with cash.
- Explore real estate crowdfunding and diversify your investments.
- And check out my top financial products recommendations for even more tips.
Rising costs are a PITA, so you've got to be smarter with your money so it stretches farther. I encourage you to peruse through the Financial Samurai archives and expand your knowledge of all things personal finance. The more you learn, the more motivated you will be to save, invest, and break free of the grind.