Understanding the Rising Cost of Living

Today, the increasing cost of living is a significant problem for many people. It touches nearly everyone, from fresh college graduates to young families, those approaching or in retirement, and even some folks well past traditional retirement age who are attempting to reenter the job market. And it isn’t just a problem in certain parts of the country. Prices are going up—a lot—almost everywhere. That isn’t to say, of course, that there haven’t been some price drops or even some deflationary periods over the past couple of years. They just haven’t lasted, and pretty much every basic basket of goods and services necessary to support a decent lifestyle has gone up.

Economic Factors

One of the primary reasons the cost of living keeps climbing is inflation. Inflation is when the overall prices of goods and services increase. Inflation doesn’t just eat away at our savings; it also vanishes our purchasing power. Understandably, people want and need their wages to increase so they can live comfortably. But alas, what we have seen in this country for several years now is that wages have really only kept up with inflation. This figure has been running hot for a while now. The demand for goods and services has played a large role in this. But supply chain issues have driven up prices, too. And when we look at the housing market, that’s another story altogether. If you’re not buying, you’re renting, and the rising property values really have landlords jazzed up.

Moreover, the cost of living can also be affected by government policy. When the Federal Reserve makes decisions about interest rates, for instance, the effects can be felt throughout the economy. Ordinarily, when the Fed lowers rates, the price of borrowing tends to drop. This situation encourages both consumers and businesses to spend more, which is good for the economy in the short run. However, the combination of more money in circulation and stable production can result in inflation. Conversely, when the Fed raises rates, that tends to squeeze the economy. Although the immediate effect of rate hikes is to stop inflation, the side effect of this inflation-stopping tool is that the overall economic growth rate tends to slow down, and that means more people are unemployed.

In this context, understanding the fed cutting rates and how it affects the economy is crucial for consumers trying to navigate the rising cost of living.

Impacts on Individuals and Families

The meaning of a climbing cost of living is clear; it affects individuals and families in a serious way. People across the nation are struggling more and more to make ends meet; many can’t even afford the basic necessities of life. The fresh and processed food we buy has seen dramatic price increases; we do our best to keep up. The nutritional value of what’s left inside our kitchen cabinets and refrigerator is a different story. And if you think a health crisis stemming from personal dietary choices is not an “affordability” issue, just wait until you see how much our insurance premiums have risen this year.

Strategies for Managing Rising Costs

Although the rising cost of living presents difficulties, it is possible for individuals and families to take steps that will give them a better handle on their finances. The first and foremost of these steps involves the creation of a budget. There are many ways to approach this task, but the best method is probably the one that’s used most often—forgettable amongst its simplicity: add your total income, then subtract your total expenses, and hopefully, what’s left is a surplus of cash that can help you fund your short- and long-term goals. As you live and work through this formula over time, you’re likely to become more familiar with what you earn and what you spend—and where you can afford to make your spending a little less “tight.”

The increasing cost of living is not a simple matter. Its impacts can be felt across the country and around the globe, and they can be borne in many different ways by various individuals and groups. It is certainly an issue that, in our current economic climate, demands our attention. But understanding the cost of living’s increase requires us first to look at several underlying factors that are vital to its story—momentous and mundane—that together help explain what the rising cost of living really is and what it means to us.

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