For 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:
- Health care
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 )