In June 2022, inflation began to soar, with the consumer price index (CPI) reaching a 40-year high of 9.1%.
Rising production costs, volatile energy prices, supply chain bottlenecks coupled with wage stagnation have resulted in several years of uncertainty and an unsustainable cost of living.
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Many Americans, particularly those just starting out in their careers, are worried about how to live their lives and plan for the future amid the costs of grief. A recent Bank of America study found that half of Gen Zers are putting off financial milestones like buying a home, saving for retirement and starting to invest.
Two-thirds of Gen Z are forced to make lifestyle changes to stay afloat in a tough market. Many are trying to figure out how to plan for the future when current finances eat up most of their income.
Planning for the present and the future
Although inflation has decreased since 2022 and many people have taken traditional measures to reduce costs, it may not be enough to offset the high cost of living across the United States.
To build wealth, Americans — especially younger generations — need to think about a long-term investment plan that's coupled with a realistic savings plan.
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Focusing on the basics of money management to account for monthly expenses versus monthly income is a good starting point for those just beginning to plan their finances, and could help build a monthly surplus to put toward savings and investments. However, many Gen Zers are finding that this tactic alone isn’t enough to get by.
Thirty percent of Gen Zers don't feel they earn enough to set aside money for savings; only 15% of Gen Zers set aside a fixed percentage of their income for savings each month, and only 20% contribute to a 401(k) or retirement plan.
Creating a monthly spending budget can help you stay on track, plan for the future, and cover unexpected costs. The Street/Shutterstock
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Many seek additional help elsewhere, particularly from their families. Nearly half (46%) of 18-27 year-olds rely on financial help from their parents, and 54% do not pay their own rent.
Living within your means
During a particularly challenging economy, job market, and housing market, the main variable people can control is their spending.
Despite enduring wage stagnation, 70% of Gen Zers feel comfortable managing their daily expenses and sticking to a budget.
Bank of America’s Better Money Habits research found that tactics like “budgeting out loud” or openly talking with friends about financial limitations on social outings has helped Gen Z stick to their personal budgets and create financial boundaries.
Sixty-three percent feel no social pressure from their friends to spend more than they should, and 38 percent feel comfortable turning down social invitations they cannot afford.
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Enoch Omololu, Forbes Contributor contours Some key ways the average person can live within their means regardless of their income:
- Implement the 50/30/20 rule: Fifty percent of income should go to needs, thirty percent to wants, and twenty percent to savings.
- Identify needs vs. wants: “Needs” are the essential items that affect quality of life, such as rent, transportation, and food. All other costs are considered “wants.”
- Use cash instead of credit: Only make purchases you can afford at the time; credit card debt is expensive and can easily accumulate. Using your debit card ensures you don't overspend.
- Set long-term goals: Even if they aren't feasible for your current financial situation, setting goals allows you to move toward the future you desire. Creating realistic yet ambitious financial goals will keep you motivated and in better shape.
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