How Much Do You Really Need to Afford Inflation?

Let us face it, everything is getting more expensive. From energy and transportation to food and rent, there is simply no way to avoid taking a hit to your bottom line—at least in the short term. But as you will see, there are also ways to make this time of economic uncertainty work for you in the long run. That said, here is how much we estimate you will need to afford the exceptionally high levels of inflation we are currently experiencing and where it will likely hit your wallet the hardest.

Food

One of the first places you will notice your dollar not stretching quite as far as it used to is at the grocery store. Food prices are up 10.9 percent for the year as of July. This includes the increase in costs for both eating at home and the costs of eating out. You may be surprised to learn that the price tag of eating at home has increased more than going out to eat; though, it is still, more often than not, cheaper to prepare your own food.

The U.S. Department of Agriculture currently estimates the monthly cost of a moderate food budget for a single male between the ages of 19-50 to be $364.50 and $308.50 for single women within the same age bracket. At the same time last year, the costs were $323.90 and $274.70, respectively. That means you can expect to pay anywhere between $33.8 to $40.60 more per month. That adds up to an extra $405.60 to $487.20 per year spent on food.

Energy

As an adult in America, it is nearly impossible to have missed the soaring price of gasoline. Even if you do not drive a car—whether it is the President, the press, or people on the street—it seems like everywhere you turn someone is talking about it. While the prices have been dropping recently, gasoline still costs 44 percent more than in July of last year. That said, energy prices as a whole (gas, oil, and electricity) are up 32.9 percent for the year; and with the uncertainty of the direction energy prices will move, it would be smart to budget at least an additional 32.9 percent into your yearly energy expenses.

Commodities

Another area you are likely to feel the effects of inflation is commodities like new and used vehicles, clothing/apparel, medicine, and medical equipment and supplies. As a whole, the cost of these items are up 7 percent from last year, with new and used vehicles experiencing the greatest price increases. Luckily, if you are not in immediate need for a new/used vehicle, the increase in prices for the arguably more essential commodities like apparel and medicine/medical supplies are at 5.1 percent and 3.7 percent, respectively.

Services

Up 5.5 percent since July of last year, services include things like shelter (rent, lodging away from home, and household insurance), transportation (public transport/air travel), and medical care services (professional services, hospital services, and health insurance). Depending on where you live, the estimated 5.5 percent might seem below what you are actually experiencing, at least where rent is concerned.

In fact, rent prices in the U.S. are up 12.3 percent for the year, and some cities have seen as much as 27 percent rent growth year-over-year. Also, if you have done any traveling recently, you know that airfare and lodging away from home have both become considerably more expensive than in years past. If you are healthy and do not need to travel, preparing for an additional 5.5 to 12.3 percent on top off your expenses for services compared to last year should be sufficient.

Overall

While many experts believe inflation in the U.S. has already peaked, some are not so sure, and there is still considerable disagreement on how quickly prices will fall. Currently, we are at an 8.5 percent increase over the last twelve months. If we hover around that number, then based on the average U.S. salary of $58,260 per year, you’d need to make an extra $4,952.10 to avoid feeling the effects of inflation. That said, in order to combat inflation, the Federal Reserve has been raising interest rates. This encourages people to save more and spend less while giving you the ability to see a better return on your money. If you have the ability, you should take advantage of a savings account, a money market account (MMA), and/or a certificate of deposit (CD) to make your money work for you.