In June 2022, inflation began surging, with the Consumer Price Index (CPI) hitting a 40-year record high of 9.1%.
Rising costs of production, volatile energy prices, supply chain bottlenecks paired with wage stagnation have resulted in several years of uncertainty and an untenable 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 amidst mourning costs. A recent Bank of America study found that half of Gen Zers are delaying financial milestones such as buying a home, saving for retirement, and starting to invest.
Two-thirds of Gen Z are forced to make lifestyle changes just to stay afloat in a challenging market. Many are trying to figure out how to plan for the future when present finances eat up most of their income.
Planning for the present and the future
Although inflation has eased since 2022 and many people have taken traditional measures to cut down on costs, it may not be enough to offset the high cost of living across the U.S.
To build wealth, Americans — especially younger generations — must think about a long term investment plan to pair 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 great place to start for those newer to financial planning — and could help build a monthly surplus to devote to savings and investments. However, many Gen Zers are finding that this tactic alone isn’t enough for them to get by.
Thirty percent of Gen Z don’t feel that they even make enough to put aside money for savings; only 15% of Gen Z put a set percentage of their income aside for saving each month, and only 20% contribute to a 401(k) or retirement plan.
Budgeting monthly expenses can help keep you on track, plan for the future, and cover unforeseen costs.
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Many are looking for supplemental support elsewhere, particularly from their families. Nearly half (46%) of those aged 18-27 rely on financial assistance from their parents, and 54% don’t pay for 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 the lasting wage stagnation, 70% of Gen Z feels comfortable managing their day-to-day expenses and sticking to a budget.
Bank of America Better Money Habits research found that tactics such as “loud budgeting,” or being vocal with friends about financial limitations for social outings, has helped Gen Zers stick to their personal budgets and create financial boundaries.
Sixty-three percent do not feel social pressure from friends to overspend and 38% feel comfortable declining social invitations they cannot afford.
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Forbes contributor Enoch Omololu outlines a few key ways for the average person can live within their means regardless of income:
Implement the 50/30/20 rule: Fifty percent of income should be allocated to needs, 30% to wants, and 20% to savings.Identify needs vs. wants: “Needs” are living essentials that impact quality of life such as rent, transportation, and groceries. All other costs are considered “wants.” Use cash instead of credit: Only make purchases you can afford at the moment; credit card debt is expensive and snowballs easily. Using your debit card ensures that you don’t overspend.Set long-term goals: Even if they aren’t feasible for your current financial position, setting goals allows you to build toward the future you want. Creating realistic yet aspirational financial objectives will keep you motivated and in a stronger.
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