How Americans are adjusting to inflation

Policygenius research shows how people are curtailing spending in response to rising prices.

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Myles Ma, CPFCSenior ReporterMyles Ma, CPFC, is a certified personal finance counselor and former senior reporter at Policygenius, where he covered insurance and personal finance. His expertise has been featured in The Washington Post, PBS, CNBC, CBS News, USA Today, HuffPost, Salon, Inc. Magazine, MarketWatch, and elsewhere.

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Many Americans are cutting back on takeout, driving, and groceries to adjust to rising prices, according to a survey from Policygenius. More than 37% of Americans say they’re eating out or ordering takeout less, while just 4% are lowering insurance coverage in response to inflation.

It makes sense that eating out is the first cut for many Americans, says Ian Bloom, certified financial planner and member of the Financial Review Council at Policygenius. When Bloom is budgeting with clients, he asks them to divide their expenses into three categories: discretionary, essential, and fixed. Eating out falls into the discretionary category, which is where most people should look first when deciding how to reduce spending.

The next-most popular move for cutting costs in the survey was driving less (27.1%). For people in cities with good public transit, this may mean taking the bus or train more often. For Americans who don’t have access to reliable public transit, this may mean opting to walk or bike more frequently or reduce non-essential trips. But many people are continuing to take vacations: AAA predicted car travel increased in July despite record-high gas prices.

“(Americans) are continuing to, over the last year, book more trips because of the wage growth that’s been happening,” Bloom says.

Very few Americans (4%) opted to reduce insurance coverage in response to inflation. Because insurance is a recurring expense, many people may not realize it’s a potential source of savings. It's a good idea to review your insurance coverage annually to make sure you're still getting the best deal.

“Depending on what happened with your house value, your car, and depending on what’s happening with your carrier, a lot of stuff can influence the price of your coverage,” Bloom says.

How to adjust to inflation

For many people, income isn't keeping pace with inflation [1] . That means you need to cut spending. There’s no exact formula for where to spend less — every person’s priorities are different. 

Bloom suggests ranking all discretionary expenses on a one to five scale based on how much happiness they bring you. That way, when it’s time to cut spending, you can start with the lowest-rated items and prioritize spending on the things that make you happiest.

“If you are rating your Starbucks coffee at a five, then let’s not eliminate the Starbucks coffee,” Bloom says.

Inflation can lead to lifestyle creep — the idea that as you earn more, you tend to spend more. When prices rise faster than income, it can lead to overspending. One way to counteract this is to automate your savings: Set part of your paycheck to deposit into your savings account or retirement fund before you can spend it.

It can be difficult to plan for inflation. Price increases haven’t been this high in decades, and it’s not clear how long it will last. When inflation does ease up, “it’s because other factors have gone negative in the economy,” Bloom says. But unlike inflation, downturns are a regular part of our economy, and they’re something everyone can and should prepare for by building a healthy emergency savings fund and a diversified portfolio.

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