New data released by The Commerce Department shows personal income dropped by 3.6 percent in January, for a total loss of $505.5 billion.
This should come as no surprise.
Thanks in part to the
It's the kind of cut that's especially painful because it's pretty much out of our hands. We're left to hunker down and deal with it. The best way? Decreasing spending and either maintaining or increasing
But we're doing it all wrong.
According to the Commerce report, personal spending increased by 0.2 percent in January. It's not a huge gain, but it's troubling to think we're spending more even though our paychecks are likely smaller.
Another study by Bankrate holds a clue to how we've managed to spend more even though we're earning less: Credit.
On average, half of Americans have accumulated more credit card
- 60% of men and 49% of women say they have more in savings than in credit card debt.
- 29% of parents with children younger than 18 have more money in credit card debt, compared to 21% of people without young children.
- 67% of people making at least $75,000 a year have more savings than credit card debt, while just 41% of those making less than $30,000 report the same.
Here's what we should be doing:
However consumers handle a drop in cashflow is up to them in the end. But finding ways to trim our budgets is probably wisest –– not making up the difference with credit
Whether you cut cable, take on some freelance work to make extra cash or cut back on eating out, the opportunities to cut costs are out there.
If you're racking up more credit debt in the wake of the Fiscal Cliff deal, you're likely committing the worst personal finance mistake: Living beyond your means.
And with the sequester looming ever closer, consumers could have even more pay cuts to deal with soon enough.