Understanding the Cost of Living in the United States: Strategies for Individuals and Businesses to Manage Financial Pressure

By Danielle Parks

The cost of living in the United States has risen, driven by inflation, housing market volatility, and fluctuating wages. This increase affects individuals, families, and businesses of all sizes. We can develop effective strategies to navigate these financial challenges by understanding how inflation influences households and enterprises.

The Core Components of the Cost of Living

Several factors contribute to the overall cost of living, and they affect both consumers and businesses alike:

1. Housing Costs: Housing continues to be the most significant expense for most households. In New York, San Francisco, and Seattle, rent has skyrocketed, pushing many residents to relocate to more affordable areas. Rising commercial rent can also become a significant financial burden for businesses. Example: Many startups in San Francisco have downsized their office spaces or adopted remote work policies to save on rent, moving their headquarters to cities like Austin, Texas, where commercial real estate is significantly cheaper.
2. Food Prices: Grocery prices are climbing due to inflation, impacting households’ grocery bills. Restaurants and food service businesses face similar challenges, as rising food costs cut their profit margins. Example: McDonald's has raised menu prices several times in the past few years to offset higher costs for ingredients like beef, chicken, and produce. However, these price increases have led some customers to switch to cheaper alternatives, affecting sales.
3. Healthcare Costs: Healthcare remains a growing expense for individuals and businesses. While individuals face rising insurance premiums and out-of-pocket expenses, companies that offer healthcare benefits to employees see their operating costs rise as well. Example: A small tech company recently had to increase employee contributions to its health insurance plan because its premiums increased by over 10% in a?year, straining its overall budget.
4. Transportation: Fluctuating gas prices affect transportation costs for individuals and companies. Companies that rely on logistics, such as delivery services or supply chain management, face increased fuel expenses, which can result in higher consumer prices. Example: Amazon has introduced additional delivery surcharges to compensate for rising fuel prices, passing these costs on to consumers. Meanwhile, individuals see higher costs at the pump, impacting commuting and everyday travel.
5. Childcare and Education: Childcare costs are a burden for many families, and companies looking to attract top talent are increasingly offering childcare benefits or flexibility in work schedules to offset these costs. Example: Companies like Patagonia have established on-site childcare centers to support working parents, improving employee retention and productivity.
6. Taxes: Both individuals and businesses must contend with various tax obligations. Higher property taxes in some states, combined with rising costs elsewhere, can make operations more expensive for businesses. For example,?in states like New York, the high cost of doing business—including high property taxes—has driven many companies to relocate to tax-friendly states such as Texas and Florida.

Inflation's Impact on Businesses

Inflation doesn’t just increase the cost of goods and services for consumers—it can also significantly affect businesses, forcing them to adapt in several ways:

1. Increased Production and Operating Costs

When inflation rises, the cost of raw materials, labor, and utilities can go up, impacting businesses' overall profitability. For companies producing goods, raw materials like metals, plastics, or agricultural products become more expensive. Even service-based businesses face rising labor costs.

• Example: Due to supply chain disruptions and inflation, a construction company saw the price of lumber rise by over 50% during the COVID-19 pandemic. This forced the company to pass these costs onto customers, leading to delays in construction projects and increased prices.

2. Pricing Strategies and Consumer Behavior

When inflation increases, businesses are often forced to raise prices to cover their costs, which can directly impact consumer behavior. Companies must balance their pricing strategies to avoid losing customers while covering expenses.

• Example: Procter & Gamble, the maker of household products like Tide and Pampers, raised prices on many of its goods due to rising raw materials costs. However, they carefully monitored consumer response and introduced smaller packages to avoid significant pushback from budget-conscious shoppers (a strategy known as "shrinkflation").

3. Supply Chain Disruptions

Inflation and global events can create significant supply chain disruptions, increasing business costs and delaying production. Businesses dependent on global supply chains have faced shipping delays, product shortages, and higher transportation costs.

• Example: During the pandemic, many automakers faced a shortage of semiconductors, which disrupted vehicle production. This shortage was compounded by inflation, as the cost of available chips skyrocketed, reducing profits and causing significant delays in car deliveries.

4. Access to Capital and Rising Interest Rates

Central banks often raise interest rates to control the economy as inflation rises. This makes borrowing more expensive for small businesses that rely on loans to finance operations, expansion, or investment in new technologies.

• Example: A small restaurant chain in New Jersey postponed its planned expansion due to rising interest rates, which made financing new locations too expensive. The company had to delay its growth strategy and focus on optimizing current operations.

How Individuals and Businesses Can Handle the Rising Cost of Living and Inflation

Both individuals and businesses can take actionable steps to mitigate the impact of inflation. Here are strategies for each:

For Individuals:

1. Create and Stick to a Budget: Building a budget helps you track your spending, prioritize essential expenses, and identify areas for reduction. For example,?a family in Ohio found that by using a budgeting app, they could better track their grocery expenses and switch to bulk buying to save $200 a month.
2. Reduce Housing Costs: Consider downsizing or moving to more affordable areas. For example,?a couple in New York City moved from Manhattan to New Jersey to save $1,500 monthly in rent while still commuting to their jobs.
3. Shop Smarter for Groceries: Use apps like Ibotta or Rakuten to get cashback on grocery purchases and take advantage of store discounts. For example,?a single parent in Texas saves 15% on monthly grocery bills by using discount apps and buying bulk at membership stores like Costco.
4. Lower Transportation Costs: Minimize personal vehicle use by using public transportation, carpooling, or working remotely when possible. Example: A remote worker in California sold his second car and switched to biking and public transport, saving on gas, maintenance, and insurance costs.
5. Increase Income: Consider starting a side business or exploring gig work to supplement income. For example,?a teacher in Florida started a tutoring side business on weekends, which brought in an extra $500 a month to help with rising food and gas prices.

For Businesses:

1. Streamline Operations: Reduce waste and improve efficiency to lower operational costs. Example: A small manufacturing firm in North Carolina invested in automation software, which improved productivity.
2. Manage Supply Chain Risks: Diversify your supplier base or build stronger relationships with key suppliers to lock in better prices. Example: A retail company in Chicago renegotiated long-term contracts with suppliers, securing discounts by committing to bulk orders over the next five years.
3. Reassess Pricing Strategies: Adopt tiered pricing or adjust your product line to cater to different consumer segments. A boutique coffee roaster in Portland introduced a "value" line of coffee beans alongside their premium offerings, appealing to budget-conscious customers without alienating loyal high-end buyers.
4. Leverage Automation: Automating repetitive tasks can reduce labor costs and improve efficiency. For example,?a New York-based accounting firm implemented automated payroll and invoicing systems, reducing administrative costs and improving client service turnaround times.
5. Negotiate with Vendors: Regularly review and negotiate contracts with suppliers and service providers for better terms. For example,?a local restaurant renegotiated its food supply contract, securing a 10% discount by agreeing to exclusive sourcing with a single vendor.

Inflation and the rising cost of living in the United States present significant challenges for individuals and businesses. However, both groups can navigate these financial pressures by adopting proactive strategies—whether through budgeting and cost-saving measures or by streamlining operations and adjusting pricing models. Whether you're looking to protect your finances or safeguard your business’s profitability,?these steps will help ensure long-term resilience and stability.

About the Author:

Danielle Parks is a seasoned financial accountant, coach, and business consultant with over 15 years of experience helping individuals, nonprofits, and small businesses navigate the complexities of financial management. As the founder of Parks Projects NJ, Danielle is passionate about providing personalized accounting services, tax planning, and financial coaching. She specializes in helping her clients achieve financial clarity, reduce stress, and make informed decisions that lead to long-term success.

In addition to her expertise in accounting, Danielle is committed to empowering people through financial education, with a particular focus on removing the stigma around discussing money. She frequently shares practical tips and strategies for budgeting, financial planning, and wealth-building, offering clients a holistic approach to managing their personal and business finances. Through her work, Danielle seeks to inspire others to embrace financial confidence and take control of their financial futures.

When she's not consulting or coaching, Danielle enjoys public speaking, writing insightful articles on financial resilience, and developing educational programs to support financial literacy in underserved communities.

You can learn more about Danielle and her services at www.parksprojectsnj.com.