It’s safe to say that 2022 changed the way many in America spent their money. Not only did inflation throw everyone for a loop by increasing grocery bills, gas prices and everyday living expenses, but it also depleted many Americans’ emergency funds and retirement savings. Last year left most Americans’ budgets severely affected by the tight economic climate and in need of a new financial approach in the new year.
With so many Americans going into the new year with drastically different saving and spending habits than the previous year, let’s take a closer look at exactly how 2022 changed us financially.
Inflation Affected Everyone’s Spending
Arguably the largest contributor to Americans’ budget in 2022 was the effect of inflation on everyone’s wallet. Between November 2021 and November 2022, inflation rose 7.1%, according to Statista. Gas prices were hit especially hard by inflation this year. While in June of 2021 the national average gas price was $3.16 per gallon, in June of 2022 the national average was $5.03, per Statista.
Discretionary Spending Cuts
Inflation also forced many to take a long look at their spending and cut back in any areas they could. For some, this meant immediate cuts to discretionary spending, such as vacations, housing upgrades and eating out.
Americans Focused On Paying Off Debt
As everyday expenses rose in 2022, so did interest rates, leaving many prioritizing eliminating debt before its growth.
“Paying off debt became more of a focus as interest rates went up, and student loans loomed in the future,” said Jay Zigmont, PhD, CFP and founder of Childfree Wealth. “If you think 2023 is going to be a rough year, as many do, paying off your debt sets a better foundation for the future.”
3 Budgeting Tips for 2023
With so many Americans feeling the financial pressure of inflation, let’s take a look at some key budgeting tips everyone should consider heading into the new year.
It’s Not Too Late To Start Budgeting
Although many budgets were affected last year, the majority of Americans never created one in the first place. According to Vanessa Martinez, founder and CEO of Em-Powered, a financial management company that focuses on empowering women financially, only 41% of people use a budget in the U.S. She urges everyone to embrace this tool, no matter how comfortable they might feel financially.
“Having a budget is key to every household, whether you are living paycheck to paycheck or have multiple investment accounts with ‘more than enough’ money,” Martinez said.
If you didn’t create a budget in 2022 — it’s not too late to gain some financial security for 2023.
Your Budget Should Be Ever-Changing
The biggest budgetary mistake you can make in the new year is making a budget and never touching it.
“A budget should be a living document, and as life changes, so should your budget,” Martinez said. “I am not saying you should review your budget every night, but you need to pick a routine and stick to it, whether it is monthly, quarterly or annually.”
It’s important to not only turn to your budget when you are hit with a financial stressor such as a job loss but to also review it after exciting financial news such as a promotion or career change.
A Simple Budget Is Better Than No Budget
“Create a budget, even if you start off with a short one and then have it slowly evolve; have a routine to review and update your budget,” Martinez said. “Like everything in life, once it becomes part of your everyday routine, it will fit right in and it won’t be a chore anymore.”
While creating a budget for the first time can seem like an overwhelming task, it’s important to remember that it’s OK to start small. The financial security will be worth the upfront intimidation.
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