Personal Finance 

Are Your Wages Keeping Pace with Inflation?

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inflationFor years, wages have been in a state of general stagnation. Even as inflation continues, wages haven’t been rising to keep pace in most cases. While real disposable income did see a bit of a boost toward the end of 2012, the trend for the last few years has been for inflation to outpace increases in wages.

As a result, real incomes might not actually be on the rise — even if you do end up with a raise. Inflation is a very real threat to your buying power, and it can impact your financial situation.

What’s Eroding Your Real Income?

For the most part, inflation is a rise in prices. As prices go up, your ability to buy the same amount with your dollar goes down. In order to enable you to keep making purchases, your wages are supposed to inflate as well.

Unfortunately, in the last couple of decades, real wage growth has been relatively low for many lower-income and middle class families. In some cases, wage growth isn’t even keeping pace with inflation, meaning that some workers have effectively seen a pay cut.

But you can’t just look at the general numbers if you want to improve your own financial situation. Instead, you need to look at what be affecting your own personal inflation rate (and reducing your overall real income). Some of the items that can cost you more over time — and that often grow at a rate that outpaces inflation — include:

  • Gas
  • Food
  • Education
  • Health care
  • Housing

Indeed, gasoline and food might not even be taken into account when some policymakers are thinking about inflation. Often, those volatile items are left out of “core CPI,” which is used as part of the policymaking process to decide on monetary policy. So, while they are items that aren’t considered in policy, they are items that make a big impact on your own budget.

However, health care is one of the biggest challenges that many families face in terms of costs that affect their “real” incomes. With health costs rising every year, it is little surprise that actual wage growth is often stunted.

What Can You Do About It?

Once you realize that rising prices could be eroding your real income, it becomes time to take action, and make an effort to reduce the impact of rising prices. One of the most effective ways to do this is to boost your own income. If you have more income, you can better deal with inflation.

This isn’t just about getting a raise, though. A traditional raise from your day job might not even be enough to beat inflation. Instead, consider ways that you can make more money. Investing, side gigs, and other income sources can help you beat inflation, and come out ahead. Think about your situation, and determine what makes sense for you.

Understand the impact inflation can have on your finances, and pay attention to what you can do to blunt some of the effects so that you aren’t taking what amounts to a pay cut over time.

(Photo: Chris Breeze)

{ 10 comments, please add your thoughts now! }

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10 Responses to “Are Your Wages Keeping Pace with Inflation?”

  1. Demi says:

    We have to remember too, long term, the amount of income reported to the IRS will affect your long term income from the IRS…Social Security. I had a fellow tell me he was working under the table making a good extra wage. I told him while he is making a good income by being paid under the table, when he goes to sign up for SS, all that money he is collecting now is not reported or credited to his overall income to figure what his SS income will be. He is cheating himself for later on. I told him he needs to put X amount away our of each of his under-the-table checks now into an account and not touch it so he has it for later when he does sign up for SS. Otherwise he is cheating himself. I know SS has a max payout and I am already there. So I do collect some income under the table because it will not drive up my max SS payout when I hit 67.5 anyway. Thoughts?

    • Sadie says:

      In reference to your
      “I told him he needs to put X amount away our of each of his under-the-table checks now into an account and not touch it so he has it for later when he does sign up for SS.”

      Best to report under-table monies even though tax owed. Reporting enables one to collect additional Social Security for the next 20 to 30 years & allows for inflation. Majority of accounts today fail to repay for that many years unless invested in an insurance product.

      As to maxing out on SS – have never reached that point but Congratulations!

  2. I honestly didn’t think side gig businesses would help much… until I started my own. I make more from my side GIF than I could hope for with a raise!

  3. We haven’t been getting any raises. I have been working on developing a side gig.

  4. admiral58 says:

    My wages are certainly not keeping up with inflation

  5. C. Dowling says:

    Wages are not keeping up. Trying to compensate with aggressive saving (coupons, rebates, deals) but that only goes so far, and the tax increases for 2013 don’t help!

  6. Karl says:

    Impact of globalization. I see no reason that it will improve. I personally meet a lot of people and most people don’t bother planning about the future, working hard, really cutting back (almost everyone has cable for $100+/month!), growing their own food, buying used items, carpooling, buying expensive convienence foods, cooking from scratch, etc. From what I read it is happening but not so much in my world (a lot of people I know are making less than 20k). We will change out of necessity.

  7. Ron says:

    I’ve been getting raises, but health insurance cost have eaten all of the raise.

  8. Squeezer says:

    My wages have been exceeding inflation only because I have changed jobs several times in the past 4 years. My wages have increased $30k/year through changing jobs and raises.

  9. Jim M says:

    My wages have not kept up with inflation. My purchasing power erodes every year.

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