With the Current Economy Should Every Household be Following a Budget?

With interest rates way up and the increased cost of living with inflation at its highest in 40 years, now is a good time to set up a household budget and keep your finances in check.

Debt Options Analysis

By Renauld Smith

Industry Veteran & Executive Director of IAPDA

With the current economy should every household be following a budget?

Over the past few years, the increasing cost of goods and services is a major contributing factor causing many to lose control over their finances. Add to the mix those that are now underemployed and worried about job security, being prepared to adjust spending habits is a must.

Less than 1/3 of U.S. households prepare a monthly budget. Statistically is seems education does play a role in the choice of budgeting. About ¼ of those with a high school education or less practice budgeting. Roughly 40% of college educated consumers are budgeting consistently. Regardless of the numbers, budgeting is effective only when those that do budget are making spending adjustments if they are ‘over budget’. This does not always happen.

According to 2022 statistics, close to 60% of Americans live paycheck to paycheck. Many will claim they don’t earn enough to budget, however almost 50% of six figure earners are caught in the month-to-month cycle. These statistics show it’s not how much money you earn, it’s how you handle your finances and spending habits.

Emergency Expenses

It is important to have an emergency fund during hard economic times and high inflation. An emergency fund is a savings account that is set aside for unexpected expenses or a job loss. Having an emergency fund can provide a financial safety net that can help households weather hard economic times and high inflation.

Roughly 40% of Americans have less than $1,000 in savings to cover unexpected expenses. The average American savings account balance is $3,200 for those under 35 and $6,300 for those aged 55 – 64.

These are common examples of everyday unexpected expenses:

  • Major appliance repairs or replacements
  • Last-minute travel
  • Unexpected tax bills
  • Medical emergencies
  • Car repair
  • Losing your job

Keeping debt in check and to a bare minimum is the best way to put yourself in a position to save money. Creating and maintaining even the most basic budget will allow you to realistically understand your financial position. In our current economy, with inflation at an all-time high everyone should be paying close attention to money coming in and money going out.

Inflationary Economy

Inflation shows a price change for goods and services over time. Inflation dictates the purchasing power of money meaning the amount of money spent today will buy fewer goods and services over time.

Inflation forces us to adjust our spending habits on day to day living expenses: housing, groceries and transportation. At times inflation will affect all three of these expenses, creating more urgency to establish a household budget.

Managing your cash flow (money in vs. money out) is the most basic yet biggest adjustment needed with inflation on the rise. Making this realization is the first step towards establishing a monthly budget. An increase in household budgeting nationwide is an inevitable necessary next step considering our current economy, as shown below.


Inflation and rising consumer costs are severely impacting Americans. More than 50% of Americans say inflation has impacted their personal finances, and most have experienced a major impact.

An important aspect of budgeting during hard economic times is to look for ways to save money. This can include finding ways to reduce expenses, such as by shopping for groceries at discount stores or by cutting back on dining out. It can also include looking for ways to increase income, such as by taking on a part-time job or by selling items you no longer need.

More than ¾ of Americans say they are making lifestyle changes to help offset the increased cost of living.

Americans are changing how they shop for groceries

  • 50% are either dining out less or spending less when dining out
  • 30% are driving less to offset cost of gas
  • 25% are spending less on vacations or deciding not to vacation at all
  • 20% are canceling subscription-based goods and services such as the gym, cable, etc.

With the demise of our economy after the pandemic, coupled with increased inflation Americans are making lifestyle adjustments and setting financial goals. These broad adjustments are more easily attainable by economizing daily maintaining a monthly budget and sticking to it.

In conclusion, budgeting during hard economic times and high inflation can be challenging, but it is important for households to prioritize spending, look for ways to save money and increase income, be aware of inflation and its effects, and to have an emergency fund. By following these steps, households can take control of their finances and make it through hard economic times and high inflation.

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