Been to the supermarket lately? If so, you probably know that your grocery budget doesn't buy what it did a few months ago. Other consumer staples also seem to cost more.
That's because rising commodity prices are driving up the costs of basic household goods such as coffee, sugar, and clothing.
"This slow creep in prices, while sometimes imperceptible to you in the grocery aisle, can have a huge impact on your monthly budget over time," said Virginia Sullivan, VP of Consumer Education at Bills.com.
The problem is largely being driven by the rising cost of commodities such as corn and cotton, which have seen a steady rise in price over the last few years, mainly for two reasons. Recent bad weather has reduced the crop volume, driving up the price. Demand is also increasing, adding more upward pressure.
The United Nations' Food and Agricultural Organization's monthly Food Price Index pegs the cost of a basket of commodities at its highest level since 1990. These higher costs are now being passed on to consumers as the recession recedes, leaving many with bigger bills at the grocery or clothing store registers.
By some estimates, food costs could rise as much as four percent in 2011. While that doesn't seem like a lot, it is more than twice the increase recorded last year. This translates into real money that will be spent in the grocery aisle and at the neighborhood restaurant.
Loss of income
"Families still dealing with unemployment or having trouble balancing their budget already simply cannot afford to see their bills rise fifty, one hundred or more dollars per month," Sullivan said.
When prices rise, it may be necessary to reprioritize your budget. If you can't increase income, something has to give. When allocating your financial resources, financial experts offer this as a prudent breakdown:
- Home mortgage and expenses: 35 percent
- Other (groceries, entertainment, clothing): 25 percent
- Transportation: 15 percent
- Debt (if relevant): 15 percent
- Savings: 10 percent
You can identify how much money you should spend in each category by multiplying each percentage times your income. Each family will have small variances within each category, but this is a good rule of thumb.
When rebalancing your budget, Bills.com recommends first validating your income and then prioritizing your expenses. This will help in making trade-offs between line items.
For example, if you need to add more money to your grocery or eating-out budget to cover higher prices, then you can easily identify lower priority items to remove. It may also be possible to keep your grocery bill consistent by purchasing off-brand items or re-prioritizing necessities such as milk or sugar over luxury items.
"Whatever your approach or budget, the important act for families is to acknowledge this trend and make the necessary changes now before you find yourself facing a huge budget deficit or even debt," said Sullivan.