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Spending more and saving less: Time for an inflation check-up

LINDSEY BELL • June 22, 2022 • 3 min read

What happened:

Inflation is officially the top concern of most Americans. Higher prices have already overstayed their welcome, especially with the cost of gas and food seriously cutting into our budgets. In May, gas prices were up almost 50% year over year and food costs increased around 10%. Add to that the 20% increase in hotel costs and 38% increase in airfare and it’s a lot to digest as the summer gets underway.

Dipping into savings for everyday expenses is not ideal. While it feels as though inflation will continue marching higher, spending more and saving less means that many people could be faced with solving a short-term problem by chipping away at the solid financial foundation they worked hard to build in recent years.

Why it matters:

Let’s remember that over the past two years, the collective wealth of the bottom 50% of U.S. households has almost doubled, making a small—but positive—dent in the country’s inequality gap. Consider what that means. People who didn’t have savings before were able to put some money in the bank. That’s huge. Savings rates spiked across the board early in the pandemic and stayed high for some time, giving people the opportunity to build a solid financial foundation.

If you were part of the group that saved more over the past few years, it probably feels strange to have to tighten your belt. In fact, our survey results showed that many are not willing to give up spending on family and friends, back to school, weddings or their home. The “great reprioritization” made many of us reevaluate where and how we spend—especially when it comes to experiences and loved ones. It’s okay to draw that line, but you need to be ready to make decisions about where you are willing to cut.

What it means for you:

These days it’s all about trade-offs and compromises that help you maintain your financial footing the best you can. With food and gas creating the biggest dents in budgets, you’re probably already trading down on brands, shopping at discount stores or substituting cheaper grocery items. Other ways to take control of higher costs are to talk to your employer about working from home an extra day or two to save on transportation costs or consider vacationing locally this year. If cutting back isn’t an option, consider finding new streams of income: a side gig, selling items you no longer use or renting out extra space in your home. Every little bit helps.

Remember: this too shall pass. Even if it doesn’t feel like it at the moment.

In the meantime, keep yourself motivated by remembering the goal. You worked hard to build those savings — don’t let inflation undo it. It won’t be easy but taking the time now will ensure you maintain your financial health for years to come.

Purple background with coins falling. Text overlay: Spare change.

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Illustration of a calendar and an electronic invoice with text: 90% of consumers have postponed an expense in the last 90 days. Source: Ally consumer survey.

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Lindsey Bell
Chief Markets & Money Strategist

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