Inflation is soaring, with consumer prices rising 8.6% in the 12 months to May, a 40-year high. Not surprisingly, this surge is having an impact on consumer spending.
Indeed, inflation forces 85% of Americans to change their buying habits, according to a Forbes Advisor Survey.
“Non-essential items have been hardest hit, with two-thirds of [the 2,000] respondents spend less on discretionary items, including entertainment and socializing,” the report said.
Only 9% said inflation had affected their travel plans, while 29% had to cancel or postpone a trip and 34% travel less often. Additionally, 17% are downgrading their rides to cheaper opportunities.
Meanwhile, 70% defer spending on major unplanned purchases. The report points out that consumers won’t be able to do this forever, when it comes to basic necessities such as household repairs and new cars. So that could become a problem.
Many bite the bullet for the essentials
When it comes to spending on essentials, around 30% of respondents have not changed what they buy and are just biting the bullet, spending more money on those purchases.
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But 54% are making changes to stay within their budget, opting for cheaper alternatives or buying smaller quantities.
When it comes to the overall picture, 78% of respondents said they have very little wiggle room in their budget. A total of 26% said they had already spent more than they could afford, probably buying with some form of credit.
A total of 27% of respondents said they had reached their spending limit and less than 10% said they had plenty of room left in their budget.
To pay their bills, 40% of survey respondents who own a credit card use it more often. A total of 26% started having a credit card balance to cover their monthly expenses. It is therefore not surprising that 64% of respondents are concerned about the impact of rising interest rates on their debt.
Practical Spending Tips
For readers on tight budgets, we don’t recommend anything drastic, just common sense. First of all, avoid unnecessary expenses: do you really need that chocolate donut every day?
Second, go for cheaper brands for the items you buy. A house brand laundry detergent will likely clean your clothes as well as advertised brands.
If you’re going to use credit cards, try to avoid having a balance. And if you can, get a card with rewards, so you can get something back for your expenses.