The Cost-of-Living Squeeze: What People Actually Cut Back On

Imagine standing at a supermarket checkout with a shopping basket that looks almost exactly like the one you bought last month.

There is bread, milk, vegetables, cooking oil, a few household essentials and perhaps one small treat.

You begin removing things.

The snacks can wait. Perhaps the more expensive brand is unnecessary. You decide to postpone buying something that is not urgent.

Nothing dramatic has happened. You have not lost your job, moved to a smaller home or stopped buying essentials.

This is what the cost-of-living squeeze often looks like in everyday life.

It is rarely one enormous purchase that suddenly destroys a household budget. More commonly, it is the slow accumulation of small increases.

A grocery bill rises slightly. Transport becomes more expensive. Rent takes a larger share of income.

Eventually, households begin changing their behaviour.

This article explains what people actually cut back on first, what they try to protect, and how small decisions add up over time.

1. The Allianz 2026 Survey: Money and Health Top the List of Worries

The Allianz 2026 survey found that finances and health were tied as the leading personal worries, each cited by 48% of respondents.

What the Numbers Mean in Practice

The fact that finances and health were tied as the leading personal worries, both at 48%, is particularly revealing.

48%: Finances and health were tied as the leading personal worries.
71%: Cost of living was the most widely cited concern.
77%: Food accounted for the largest share of household budgets.
49%: Housing was the second-largest expense.
35%: Respondents were concerned about the cost of healthcare.
34%: Respondents were concerned about the cost of energy.

In practice, the findings suggest that finances and health are not separate concerns. When money is tight, it can affect sleep, stress levels and the ability to pay for healthcare.

A household can experience both at the same time.

For example, a household may notice:

Its weekly grocery bill rises.
Its monthly electricity bill is higher than expected.
Transport costs increase.
Its landlord raises the rent.
Its insurance premium increases.

These examples illustrate how a broad pressure on prices can affect several parts of a household budget at once.

The 5% Who Feel Financially Secure

Some households already report that they feel financially secure. Allianz found that only 5% of respondents considered themselves financially secure. This small proportion may reflect the combined effect of higher prices, limited wage growth and uncertainty about future costs.

One possible explanation is that the most affected households are also the least likely to feel secure. A household that is already struggling to pay for food and housing may have little capacity to save or plan for the future.

A household that feels more secure may be able to make choices that reduce its exposure to rising prices. For example, it may be able to buy in bulk, pay for annual subscriptions in advance or invest in energy-efficient appliances.

Consequently, consumers may:

66% planned to reduce spending on eating or drinking out.
54% planned to reduce spending on clothing.
48% planned to reduce spending on conveniences.
48% planned to reduce spending on subscriptions.
48% planned to reduce spending on events.
46% planned to reduce spending on holidays.

This pattern suggests that small reductions in discretionary spending are often the first response when households feel pressure on their budgets.

2. Where the Money Actually Goes: Housing, Food and Transport

The United States Bureau of Labor Statistics provides one example through its Consumer Expenditure Survey.

In 2024, the average American consumer unit allocated its annual expenditure approximately as follows:

Housing (33.4%)
Transportation (17%)
Food (12.9%)
Healthcare (8.1%)
Entertainment (5.3%)
Other categories (23.3%)

Housing

Housing is the largest single category, accounting for 33.4% of average annual expenditure. This includes rent or mortgage payments, utilities and maintenance.

Transportation

Transportation is the second-largest category, at 17%. It includes vehicle purchases, fuel, public transport and maintenance.

Food

Food represents 12.9% of average expenditure, covering both food at home and food away from home.

Healthcare

Healthcare costs represent 8.1% of average expenditure, including insurance premiums, medical services and prescription drugs.

Entertainment

Entertainment accounts for 5.3% of average expenditure, including streaming services, hobbies and social activities.

Other categories

The remaining 23.3% covers other categories, including clothing, education, personal care and miscellaneous expenses.

These figures come from the U.S. Bureau of Labor Statistics' Consumer Expenditure Survey, which collects detailed information about household spending.

The proportions differ by country and household type, but the pattern is similar in many economies: housing, transport and food together account for most spending.

The size of these categories also explains why certain spending is difficult to reduce quickly. A household cannot easily reduce its rent or stop travelling to work, but it can reduce spending on entertainment or eating out.

3. Inflation, Disinflation and Why Prices Do Not Simply Go Back Down

Inflation is often misunderstood. Many people assume that when the inflation rate falls, prices will also fall. In practice, that is not what usually happens.

Why a Falling Inflation Rate Does Not Mean Falling Prices

A lower inflation rate does not mean that prices are falling. It means that prices are rising more slowly than before.

This distinction is known as disinflation: the pace of price increases slows without the general price level necessarily falling.

The Compounding Effect of Everyday Price Rises

A simple example illustrates the point. If a basket of goods cost $100 last year and prices rose by 5%, the basket would cost $105 this year.

If prices then rise by 3% the following year, the basket costs $113.30.

This is why many households report that their budgets feel tighter even when the official inflation rate has fallen. Prices have not returned to their earlier level; they have simply risen more slowly.

The same principle applies over longer periods. Small annual increases compound over time, so a household that earned the same income five years ago would need substantially more money today to buy the same goods and services.

Wages, Purchasing Power and the Cost of Living

At the same time, many workers have experienced pay rises that have not kept pace with prices. When wages rise more slowly than the cost of living, purchasing power falls.

In practice, households adjust in stages. They may first reduce discretionary spending, then look for cheaper alternatives, and finally reconsider larger fixed costs.

4. What People Cut First: The Discretionary Spending

When prices rise, people usually protect essential spending first and reduce discretionary spending. This pattern is consistent across surveys.

In a 2026 survey, YouGov asked 1,340 American adults how they expected their spending to change if their financial situation worsened.

A later study by YouGov in 2025 reported that 33% of those who expected their finances to worsen said they would reduce grocery spending, while 66% said they would reduce spending on eating out and takeaways.

Reduce restaurant visits.
Choose cheaper restaurants.
Cook more meals at home.
Buy fewer takeaway coffees.
Share subscription services.
Cancel unused gym memberships.

Eating Out and Takeaways

Eating out is usually one of the first expenses people reconsider. Restaurants combine the cost of food with service, ambience, transport and time.

Some people reduce the number of restaurant visits but continue to meet friends for coffee or a walk. Others switch from restaurants to takeaways, and then from takeaways to cooking at home.

Clothing and Non-Essential Purchases

Clothing is another category that households can postpone. Many people continue wearing clothes they already own, repair items instead of replacing them, or buy second-hand.

Travel and Entertainment

Travel is another area where households make rapid adjustments. Holidays may be shortened, destinations changed or trips postponed.

Entertainment follows a similar pattern. Households may cancel streaming services, reduce spending on concerts or choose free activities.

Small Daily Purchases That Add Up

Small purchases can also matter. A daily coffee or snack is inexpensive on its own, but the cost adds up over a year.

If someone buys a $5 coffee five times a week for 50 weeks, the total is $1,250.

The point is not that every small purchase is wasteful. It is that small, frequent purchases can have a surprisingly large effect on a household budget.

5. What People Try to Protect: Essentials, Housing and Health

Most households try to protect expenses connected to:

Housing, because moving is expensive and disruptive.
Essential food, because everyone has to eat.
Healthcare and medications, because the consequences of missing them can be serious.
Transport to work or school, because earning an income depends on being able to get there.
Education, because parents tend to protect their children's schooling.

A family comparing food products while shopping in a supermarket — Family members comparing food products during a supermarket shopping trip. Photo by Vitaly Gariev on Unsplash. Used under the Unsplash License. View the photo on Unsplash.

Protecting an expense does not always mean keeping it unchanged. A household may protect housing by staying in the same home, but reduce other costs to afford it.

The Which? Evidence

The same pattern appears in a Which? survey. When households were asked how they would respond if their financial situation worsened, most said they would reduce discretionary spending before cutting essentials.

Among respondents who expected their financial situation to worsen:

In November 2025, Which? reported that 52% of households had made at least one change to their spending in response to rising prices.

6. Food: The Most Sensitive Part of the Budget

Some households reduce the cost of food by switching brands, buying in bulk or shopping at discount stores.

Households may respond by:

Switching to a supermarket's own-brand products.
Choosing cheaper cuts of meat or plant-based proteins.
Buying seasonal produce.
Comparing unit prices.
Shopping at discount stores.
Using loyalty schemes.

Switching Brands and Comparing Unit Prices

Meal planning can also help households use food more efficiently. Planning meals in advance reduces impulse purchases and helps households buy only what they need.

A practical approach involves:

One meal based on beans or lentils.
One meal using frozen vegetables.
One meal based on seasonal produce.
One meal that uses leftovers.
One meal that is simple and quick to prepare.

Meal Planning and Reducing Waste

The Environmental Protection Agency (EPA) notes that food waste is a common and expensive problem. Households often throw away food that could have been eaten.

Checking the refrigerator and cupboards before shopping.
Using leftovers in later meals.
Freezing food that will not be used in time.
Storing food correctly.
Planning meals around food that is already available.
Composting inedible food waste.

The Food and Agriculture Organization (FAO) recommends planning meals, using leftovers and storing food correctly.

The Limits of Cutting Grocery Spending

There is a limit, however, to how much households can reduce food spending. Food is essential, and cutting it too far can affect health and wellbeing.

7. Housing: The Largest Fixed Cost

Housing is often the most difficult expense to change quickly. Rent or mortgage payments are fixed, and moving is expensive and disruptive.

In the United States, housing accounted for 33.4% of average consumer expenditure in 2024.

Moving home can reduce rent, but it also creates costs, including deposits, moving expenses and the time needed to find a new home.

Renters

A household might:

Review the rental agreement. Ask about the terms before signing.
Consider a less expensive area or a smaller property. Moving can reduce rent, but it also involves costs.
Share a home with others. Sharing can reduce rent and utility bills.
Negotiate with the landlord. When renewing a lease, it may be possible to negotiate the rent.

Homeowners

The position is different for homeowners. Mortgage payments are often fixed for a period, but interest rate changes can affect monthly costs. Homeowners may also face maintenance and repair costs that renters do not.

8. Transport: Getting to Work, School and the Shops

Transport is another category where households have limited flexibility. Most people need to travel to work, school or the shops.

For many households, the main opportunity is to reduce the number of journeys, combine trips or choose cheaper modes of transport.

Combining Trips and Choosing Cheaper Options

Drivers also pay for:

Insurance
Maintenance
Repairs
Tyres
Registration
Parking
Financing
Depreciation

The Hidden Costs of Car Ownership

Some costs are fixed, such as insurance and registration. Others depend on how much the car is used, such as fuel and maintenance.

9. Energy and Utilities: Small Changes, Real Savings

Energy bills are another regular expense. Heating, cooling, lighting and appliances all use energy, and prices have risen in many countries.

A household can reduce energy use without reducing comfort by finding wasted energy.

Finding Wasted Energy

Depending on the property and climate, practical measures include:

Sealing gaps around windows and doors.
Using LED lighting.
Turning off lights and appliances when not in use.
Using a programmable thermostat.
Washing clothes in cold water.
Air-drying clothes when possible.
Maintaining heating and cooling systems.

Low-Cost Improvements First

The U.S. Department of Energy recommends sealing air leaks and adding insulation before investing in expensive upgrades.

Improving insulation can reduce heating and cooling costs, but it requires an initial investment that not all households can afford.

10. Subscriptions: The Quiet Drain on Household Budgets

A household might pay for:

Video streaming
Music streaming
Cloud storage
News and magazines
Fitness apps
Gaming services
Software
Food delivery
Online shopping memberships
Children's apps

Subscriptions are easy to overlook because each one is relatively small. A household may pay for several services without realising how much they add up to over a year.

A practical way to review subscriptions is to list every recurring payment and check whether it is still used.

The Subscription Audit

For every recurring payment, ask:

Do I still use this service? If not, cancel it.
Could I use a free alternative? Many services have free versions.
Could I share this service? Some services allow family sharing.
Is there a cheaper plan? A basic plan may be sufficient.
Am I paying twice? Some services overlap.

Cancelling Without Losing Something Important

Cancelling a subscription is not always straightforward. Some services make it difficult to cancel, or continue charging after cancellation.

The Federal Trade Commission (FTC) advises consumers to keep records of cancellations and check bank statements to confirm that charges have stopped.

11. Savings and Emergency Funds: The Hidden Cut

Reducing savings is a quieter form of adjustment. It does not change daily life immediately, but it reduces a household's ability to cope with future problems.

Why Savings Fall First

For many households, savings are reduced before they cut essential spending. This is understandable: saving feels optional in the short term, while food and housing do not.

The Allianz survey found that 22% of respondents were focusing on saving for essential future expenses, such as retirement or healthcare.

Emergency Funds: Starting Small

One approach is to start with a small emergency fund. Even a modest amount can help with unexpected expenses, such as a car repair or a medical bill.

When Savings Become a Warning Sign

A household may also use savings to cover regular expenses. This can be a warning sign that spending exceeds income.

12. The Small Decisions That Add Up

The most effective approach is usually to combine several small changes. No single change will solve a household's budget problems, but several small changes can make a real difference.

The cost of a purchase is only part of the story. How often it is bought matters just as much.

The Frequency Problem

Consider three hypothetical expenses:

$5 coffee: 5 times weekly for 50 weeks — $1,250.
$12 lunch: 3 times weekly for 50 weeks — $1,800.
$15 streaming service: Monthly for 12 months — $180.

The examples above show that frequency matters. A small, frequent purchase can cost more over a year than a larger, occasional one.

Convenience Spending

Convenience also affects household spending. Delivery services, pre-prepared meals and ride-hailing can save time, but they add cost.

It is worth distinguishing between convenience that saves time and convenience that simply adds cost.

Cost Per Use

A useful question is how much a purchase costs per use. A more expensive item that is used frequently may cost less per use than a cheaper item that is rarely used.

13. How Different Households Experience the Squeeze

Households experience the squeeze in different ways. Age, family size, income and location all affect how rising prices are felt.

Young Adults

Young adults are often affected by a combination of rent, transport and education costs. They may also have less savings to fall back on.

Their adjustments might include:

Sharing accommodation with others.
Using public transport instead of owning a car.
Cooking at home more often.
Finding free or low-cost entertainment.
Delaying major purchases.
Working additional hours.
Using budgeting apps.

Families

Families face a different set of pressures. Food, clothing, childcare and education costs all rise with the number of children.

Older Households

Older households may have less flexibility. They may own their homes, but face rising costs for healthcare, energy and maintenance.

Freelancers and People With Irregular Income

Freelancers and people with irregular income face a different problem. Their income may vary from month to month, making it difficult to plan.

14. A Practical Budget for Difficult Times

A practical budget does not need to be complicated. It can be a single page or a simple spreadsheet.

Money and a calculator on a desk, illustrating household budgeting — Money and a calculator illustrate the practical side of managing household expenses and reviewing a budget. Photo by Jakub Żerdzicki on Unsplash. Used under the Unsplash License. View the photo on Unsplash.

A good starting point is to record what actually leaves the household account. Many people are surprised by how much they spend on small, frequent purchases.

Step 1: Record Actual Spending

Record:

Rent or mortgage.
Council tax or local taxes.
Utility bills.
Food.
Transport.
Insurance.
Healthcare.
Education.
Clothing.
Entertainment.
Subscriptions.
Loan repayments.

The Consumer Financial Protection Bureau (CFPB) recommends reviewing actual spending, rather than relying on estimates.

Step 2: Classify Expenses

The next step is to separate essential spending from spending that can be changed.

For example:

Housing.
Basic groceries.
Utilities.
Transport to work.
Healthcare.
Insurance.
Education.
Debt repayments.

Restaurants.
Takeaway.
Entertainment.
Subscriptions.
Clothing.
Travel.
Convenience purchases.
Gym memberships.

Some expenses fall into both categories. For example, food is essential, but eating out is not.

Step 3: Focus on the Largest Categories

Once the categories are clear, the next step is to focus on the largest categories. Small savings on housing or transport can matter more than large savings on small categories.

Step 4: Make Changes You Can Sustain

The aim is to choose changes that can be maintained. A dramatic cut that lasts only a week is less useful than a smaller change that lasts a year.

Step 5: Review Monthly

A monthly review can help a household see whether the changes are working.

Ask:

Did grocery spending fall?
Did transport costs fall?
Did subscriptions decrease?
Did savings increase?
Did the household feel less pressure?
Are the changes sustainable?

If the answer to any of these questions is no, the household may need to adjust its approach.

15. When Cutting Back Is Not Enough

There comes a point when reducing discretionary spending is no longer enough. A household that has already cut eating out, entertainment and subscriptions may have little left to cut.

In that situation, the problem is not a lack of budgeting skill. It is that essential costs exceed income.

Signs That Spending Cuts May Not Be Enough

The following signs may indicate that the household needs more than small adjustments:

Regularly using credit to pay for essentials.
Missing payments on rent, utilities or loans.
Using savings to cover regular expenses.
Skipping meals or medical care.
Borrowing from family or friends.
Feeling constant stress about money.
Having no savings at all.

What to Do Next

Households should also consider contacting creditors or service providers. Many will agree to payment plans or temporary reductions.

Protecting Essentials

When a household is forced to choose between basic needs, protecting essentials is more important than maintaining appearances.

16. Conclusion: Financial Resilience Is About More Than Spending Less

The cost-of-living squeeze is not simply a story about rising prices. It is a story about how households adapt when their budgets are under pressure.

The Allianz findings suggest that financial concerns are connected to health and wellbeing. When money is tight, it affects sleep, stress and the ability to pay for healthcare.

Households that adapt successfully tend to protect essential needs, reduce discretionary spending first and make small, sustainable changes.

The goal is not to eliminate every discretionary expense. It is to make choices that protect what matters most, while keeping some room for enjoyment and connection.

Key Takeaways

Finances and health are the top worries. In the Allianz 2026 survey, both were cited by 48% of respondents.
Cost of living affects most households. It was cited by 71% of respondents.
Food and housing dominate budgets. Food accounted for 77% of budgets and housing for 49%.
Discretionary spending is cut first. Eating out, takeaways, entertainment and holidays are usually reduced before essentials.
Essentials are protected. Housing, food, healthcare, transport and education are usually protected.
Small purchases add up. A $5 coffee five times a week costs $1,250 a year.
Frequency matters. How often something is bought matters as much as its price.
Subscriptions are easy to overlook. Small recurring payments can add up to a large annual total.
Savings are often reduced first. This is understandable, but it reduces resilience.
Financial resilience is broader than cutting expenses. It includes savings, manageable debt and the ability to cope with unexpected costs.

Frequently Asked Questions

Why do people cut back on eating out first?

People usually begin with discretionary spending, such as eating out, takeaways, entertainment, holidays and subscriptions.

These are the easiest categories to reduce without immediately affecting essential needs.

The YouGov survey found that 66% of people who expected their finances to worsen planned to reduce spending on eating out.

Why does food feel more expensive than other categories?

Food is purchased frequently, so price increases are noticed quickly.

Families with children and people with specific dietary needs may feel the effect more strongly.

Does a falling inflation rate mean prices are going down?

No. A falling inflation rate usually means prices are rising more slowly, not falling.

Unless inflation becomes negative, the general price level remains higher than before.

How can households reduce food costs without eating less healthily?

Meal planning, comparing unit prices and reducing waste can help.

Choosing seasonal produce, frozen vegetables and affordable protein can also reduce costs without removing nutrition.

Are subscriptions really a problem?

It can be. Small subscriptions add up over a year.

A household paying for several unused services can save money by cancelling them, but it should check that the cancellation has taken effect.

Should people stop saving when living costs rise?

Not necessarily. Even a small emergency fund can help with unexpected expenses.

However, households under severe pressure should protect essential needs first.

Why is housing so difficult to change?

Housing is a fixed cost linked to location, employment and family needs.

Moving can be expensive, and renegotiating a mortgage or rental agreement is not always possible.

What are the easiest ways to reduce energy bills?

Sealing air leaks, using efficient lighting and maintaining heating and cooling systems can help.

The Department of Energy recommends starting with low-cost improvements.

Does a pay rise solve the cost-of-living problem?

A salary increase does not always restore purchasing power.

If housing, food, transport and energy rise faster than pay, a household may have less money left after essentials.

What is the difference between cutting expenses and financial resilience?

Cutting expenses reduces spending. Financial resilience is broader.

It includes savings, manageable debt and the ability to cope with unexpected costs.

When should a household seek help?

If discretionary spending has already been reduced, the problem may be that essential costs exceed income.

In that case, households may need to contact creditors, seek advice or explore support options.

Where should a household start?

There is no single answer, but a practical starting point is to review actual spending, protect essentials and remove low-value recurring costs.