The latest inflation data might be a sigh of relief for American families living under the twin pressures of rising living costs and stagnant wages. For many, a 4.0% rise in the Consumer Price Index, down from 4.9% in April, is a promising sign of price growth deceleration, even if the rate is still above the Fed’s targeted range of 0% to 2%.
But for many households, the damage is already done. The highest inflationary period since the 1980s has left families struggling to make ends meet, even if on paper they appear to be earning a decent amount of income.
A look at the numbers
According to research compiled by The Ascent, the median U.S. household income in 2021 was $69,717. While the national average U.S. household income was $97,962, the median is a better measure of Americans as a whole, as it’s not skewed by extremely large or small incomes.
A median household income of $69,717 isn’t exceptional, but it’s also not below the poverty threshold either. However, when compared with how much the typical American household spends, its inadequacy is glaring.
According to another report by The Ascent’s research team, the average household’s monthly expenses were $5,577 in 2021, or $66,928 per year. That’s only $2,789 less than the median household income of $69,717.
Housing was by far the biggest budget item for the year ($22,624 annually), followed by transportation ($10,961), food ($8,289), and personal insurance and pensions ($7,873). Healthcare was also a big expense ($5,452), as was entertainment ($3,568).
While some of these expenses could be budgeted down (entertainment, for instance), most are firm and cannot be adjusted significantly, even with a frugal lifestyle. That leaves many Americans, even those earning a decent income, feeling cash-strapped and unable to save for important financial goals, like buying a house, saving for their kids’ education, investing for retirement, and paying down debt. Having $2,789 leftover is better than nothing, but it isn’t enough to make significant progress for these goals, especially if you have an unexpected bill thrown at you midway through the year.
Inflation has exacerbated the problem
Worse is the fact that rising prices for food and gas have made it more difficult for Americans to save. While wage growth and inflation rates have finally crossed paths and reversed directions, inflation was well above wage growth for almost two years.
For reference, here’s how both rates have danced around each other year over year:
| Month | Inflation rate | Wage growth rate |
|---|---|---|
| June 2022 | 9.1% | 6.7% |
| July 2022 | 8.5% | 6.7% |
| August 2022 | 8.3% | 6.7% |
| September 2022 | 8.2% | 6.3% |
| October 2022 | 7.7% | 6.4% |
| November 2022 | 7.1% | 6.4% |
| December 2022 | 6.5% | 6.1% |
| January 2023 | 6.4% | 6.1% |
| February 2023 | 6.0% | 6.1% |
| March 2023 | 5.0% | 6.4% |
| April 2023 | 4.9% | 6.1% |
Data source: Statista.
How you can boost your income
If you can’t earn more income with a side hustle or by changing jobs, here are a few income-boosting tips that could help your personal income exceed your expenses:
- Use a 0% APR credit card to pay down debt. The best 0% APR credit cards give you a chance to consolidate or transfer credit card balances to a card that doesn’t charge interest. Of course, you’ll want a plan: Most 0% APR cards have zero interest for a period, after which you’ll pay interest at a regular APR. But if you can plan ahead, they can help you pay down debt and save money on interest.
- Sign up for cash back credit cards. The best cash back cards reward your everyday spending, without encouraging you to spend extra. Many of the best cards come with hefty welcome bonuses, too, which could give your personal finances a boost.
- Buy in bulk at discount warehouses to save money on groceries. Costco and Sam’s Club memberships come with annual costs, but their low prices could help you save more on food.
Finally, the fact that wage growth has once again outpaced inflation is a good sign. Of course, part of the reason the Fed has increased interest rates is to discourage employers from raising wages, which, in its eyes, only contributes to inflation. But if you’re not making enough income, don’t be afraid to ask your employer for a raise, or better yet — start looking for a job that will pay you more.
