Sticky inflation has made it increasingly expensive for ordinary Americans to achieve a lifestyle where they’re able to live “comfortably.”
Or at least that’s what the results of a SmartAsset study based on MIT’s Living Wage data, indicate. As the study found, those who live in the 25 largest metros need on average a post-tax income of at least $68,499 to “live comfortably.”
Of course, where you live plays a huge part in how much you’ll actually need to feel comfortable, the study points out. For example, in San Francisco, it’ll take at least $84,000 a year to identify as comfortable. Meanwhile, meet me in St. Louis where all it takes to get there is $57,446.
But regional differences aside, everyone’s feeling their budgets are tighter than ever these days. This year’s numbers are 20% higher than a year ago — likely due to a broad range of factors, including pesky inflation, higher mortgage rates and a nationwide shortage of rental units.
The good news? Inflation has been cooling, now at nearly one-third of its peak of 9.1% in June 2022, though it’s still well over the Federal Reserve’s target rate of 2%. Here’s how to stay ahead of inflation without breaking a sweat.
Set a realistic budget
“Realistic” strikes a balance between your savings and earnings, and the forces of your family’s lifestyle, fixed bills and the economic climate. The SmartAsset study assumes a budget that attributes 50% to needs, 30% to wants and 20% to savings — a classic formula popularized by Sen. Elizabeth Warren. However, most Americans spend way more than they should on wants: eating out, luxury items and expensive vacations, for example. That leaves barely anything left to add to their savings.
The personal savings rate in America was 3.8% as of October, according to the U.S. Bureau of Economic Analysis. Meanwhile, the average family in the country spent roughly 25% of their disposable income on shelter costs like rent or mortgage.
Making a budget even slightly better than these national averages can move the needle towards comfortable living.
Read more: Millions of Americans are in massive debt in the face of rising rates. Here’s how to get your head above water ASAP
Invest in inflation-fighting assets
Inflation acts as an invisible tax that makes life less comfortable. The current 3.7% rate, while it reflects a cooling off, still is far off from the Fed’s target and well above the near-zero average of the previous decade.
To maintain purchasing power, investors and savers need assets that resist this pesky headwind. Real estate represents a prime example. Hard assets like homes, warehouses and data centers tend to retain their value when spending power declines. This explains why many experts consider real estate an inflation hedge.
In fact, the average rental yield on a typical American property is 6.12% now that rents have escalated, considered “moderate to good” by the Global Property Guide. Notice how that beats the current rate of inflation.
Of course, investing in commercial real estate has traditionally been reserved for the ultra rich who can afford to drop tens (or hundreds) of thousands on an investment. But these days, new investing platforms make it possible for regular investors to get in on the action.
Consult the experts
Some money-making and management techniques require expert skills that may need to be outsourced — ranging from extra income sources to tax strategies that result in less money going to Uncle Sam.
A CPA or accountant can help with the latter goal, while a professional financial planner can fine-tune (or create) a portfolio that accelerates wealth creation. A business coach, meanwhile, can introduce you to steps that will increase your income from side hustles, passive strategies and entrepreneurial ventures.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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