Wages Aren't Keeping Up With Inflation: A Financial Adviser's Tips to Bridge the Gap

Since the pandemic, inflation has stretched Americans' dollars thin. Inflation has risen nearly 23% since January 2021, according to the Bureau of Labor Statistics.

Wages, on the other hand, haven't quite kept up, rising by 21.5%.

While several interest rate adjustments and policies, such as the Inflation Reduction Act or the One Big Beautiful Bill, have been made to help curb inflation, Americans' concerns are growing.

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The University of Michigan's Consumer Sentiment Survey showed year-ahead inflation expectations among Americans grew to 4.8% in August, up from 4.5% in July.

The headline Consumer Sentiment Index came in at 58.2 for the month, down more than 5% from July and more than 14% from a year ago.

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As Americans continue to grapple with prices that are rising faster than wages and dwindling confidence in the economy, it's crucial to have a plan in place to help bridge the gap and build long-term financial stability.

It all starts with a budget

You've likely heard the importance of having a budget. However, very few people actually know where every dollar goes. Once you know where your money is going, you can determine the best use for each dollar.

Start by listing essential expenses, such as groceries, rent/mortgage payments and debt. Then, identify and trim back unnecessary spending, such as dining out and subscription services.

Your budget can also be used to achieve savings goals and debt repayment, even during periods of inflation. Carving out money for emergency savings or high-interest debt payments will help ensure you're saving or paying off debt at a rate you can actually afford.

This will help you feel more in control during a time when it feels like so much is out of your control.

Look to boost your income

If you build your budget and realize you need additional income, or want to boost your savings, look for opportunities to stretch your income. The gig economy is booming right now with services like Uber, DoorDash and Instacart.

Typically, these jobs are very flexible, allowing you to work as much or as little as you'd like. Even an extra $100 to $200 can help offset price increases or provide a nice contribution to your savings account.

You can also look for ways to maximize your current employer's benefits. Some companies offer commuter stipends, wellness reimbursements or education credits that can reduce out-of-pocket costs.

If you're struggling financially, don't be afraid to have a conversation with your employer. See what benefits you may qualify for, or consider asking for a raise.

If your company offers health savings accounts or flexible spending accounts, take advantage of those, too. Take this time to review your tax withholdings and adjust them, if needed, to ensure you're not giving the government an interest-free loan.

Put a lid on your expenses

During periods of inflation, you also want to be strategic in how you manage your expenses. When it comes to recurring bills, including internet, insurance premiums, phone service or other utilities, call providers for discounts.

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After explaining your situation, you might find there are loyalty programs you're eligible for, or you may be able to negotiate a lower rate. Even a small reduction adds up.

Grocery costs have also become a burden for families. To cut costs, consider batch cooking, swapping name brands for generics or growing some of your own produce.

It's also important to prioritize paying off your debt. Consider utilizing the avalanche or snowball methods to pay off debt. The sooner it's paid off, the more money you'll have to allocate elsewhere.

Be ready for an emergency

It's also important to protect your purchasing power. Building an emergency fund, like mentioned above, can help provide a cushion for unexpected costs and prevent you from charging up your credit card.

If you have savings, consider putting some of those funds into a high-yield savings account or investing it to maximize those dollars.

Living through financial challenges can be extremely stressful, especially when it feels like so much is out of your control.

However, finding ways to earn more money, cut spending and grow your savings are the best lines of defense.

Taking these steps to build financial stability will help you become more resilient to economic challenges.

Brad Clark is an investment advisory representative of and provides advisory services through CoreCap Advisors, LLC. Solomon Financial and CoreCap Advisors are separate and unaffiliated entities.

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