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Personal Budgeting Strategies: How Americans are Managing Stagnant Pay in Tough Times

As economic concerns among families persist, workers struggle to make the most of their incomes and refuse to give up their summer vacations.

Kate McLaughlin’s paycheck doesn’t stretch far enough these days.

“We already take the subway to work, walk to the library and post office, and drive used (9 and 18 year old) cars,” says McLaughlin, a cooperative education coordinator at Northeastern University in Boston, who’s been forced to tighten down her personal budgeting strategies. “The main change my husband and I have made is to stop using our credit card for gas, grocery shopping and eating out … We just set aside a certain amount of cash for food and gas at the beginning of the month (literally, one envelope for food and one envelope in each car for gas) and that’s what we have.”

The McLaughlins aren’t the only family feeling the economic pressures of rising food and gas prices.  More families are curbing their spending habits, and developing personal budgeting strategies. What’s putting the squeeze on the McLaughlins and other workers? The uptick in food and gas prices plays an important part, experts say. As of Aug. 11, rising gas prices brought the average cost of gas to $3.81/gallon, up $1.04 from a year ago, according to the Energy Information Administration.

The USDA’s Economic Research Service expects rising food prices to increase 4.5 to 5.5 percent in 2008. Over the last 15-20 years, food-price inflation has been around 2.5 percent per year, according to USDA economist Ephraim Leibtag. Meanwhile, the Bureau of Labor Statistics says in June, average weekly earnings when adjusted for inflation were down 2.4 percent from a year ago.

If your paycheck isn’t stretching far enough these days, consider switching to a high paying career, asking for a raise, or using personal budgeting strategies. 

Here are more ways Americans are using personal budgeting strategies to navigate fiscally uncertain times. Keep reading--you might be surprised.

1) Shopping Smarter with Rising Food Prices

What can be done about soaring food prices? To get by, people are paring down and learning how to prepare a grocery shopping budget. For some, personal budgeting strategies mean finding vehicles with better gas mileage, clipping coupons, or shopping at Wal-Mart instead of Macy’s. Craig Johnson, president of Customer Growth Partners, a retail-consulting and research firm in Connecticut, says Americans are “realistic, resourceful and resilient.”

Pam Villarreal, a policy analyst at the National Center for Policy Analysis in Dallas, says people are spending less on big-ticket items, such as electronics, TVs, and high-end clothing, and focusing on necessities like food, gas, and medicine.

“People are being hit in the pocketbook with these price increases, but they have room to trim. They are cutting back on discretionary spending and hanging on to durable goods longer, not running out and buying a new fridge or washer and dryer,” she explains.

2) Driving Less Because of High Gas Prices

Public transportation has become a way to dodge rising gas prices. The American Public Transportation Association says Americans took more than 2.6 billion trips on public transportation in the first three months of 2008, almost 88 million more trips than last year for the same time period.

Other personal budgeting strategies include tossing aside gas-guzzlers. “I had a client trade a pickup truck for a Mazda Miata. He went from a gas hog to a very economical car to drive, so we see a lot of that trend happening right now,” says Doug Charney, senior vice president of Charney Investment Group of Wachovia Securities in Harrisburg, Penn.

3) Taking Retirement Plan Loans

Tapping into a 401(k) or other retirement plan is considered by many experts to be an expensive risk with huge penalties. But that’s not stopping Americans facing dire financial need. According to a report from the Center for American Progress, loans from retirement savings accounts increased almost fivefold (inflation-adjusted) over 15 years, from $6 billion in 1989 to $31 billion in 2004. “Over the past few years, families looked for new ways to bridge the gap between slow income growth and rapidly rising prices, especially for houses, but also for food, energy, and health care,” the report explains. If you do decide to take this route, be sure to seek out a fair and reasonable rate for retirement plan loans.

4) Sticking with Vacation Plans

Despite other cutbacks and personal budgeting strategies, Americans aren’t scratching vacation plans. A spokeswoman for the Travel Industry Association says people are more interested in learning how to plan a vacation on a budget, but they’ll still do what it takes to get away. Earlier this year a survey by TIA and Ypartnership showed 59 percent of Americans planning a trip with their car, truck or SUV this summer wouldn’t change travel plans, despite rising gas prices.

Kim Danger, a family savings expert for Coupons.com, says summer vacations are important because they let workers regroup and relax. Even if money is tight, saving for a great escape is possible, she says:

• Hold a garage sale-purge unwanted goods while earning cash.
• Stash loose change in a large jar-it adds up fast.
• Set up a high-yield online savings account as a vacation fund-automatically deposit a certain amount of money there each week.

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