Savings rates are falling, and there’s a reason for that.
- The personal savings rate of Americans fell to 5.1% in June, the lowest since August 2009.
- Credit card debt among consumers has also increased dramatically.
It’s no secret that Americans are feeling the (financial) pain of runaway inflation. But new data from the New York Federal Reserve reveals how the higher cost of living is impacting consumer finances.
In June, the personal savings rate of Americans fell to 5.1%, marking the lowest level of savings since August 2009. Meanwhile, over the past year, consumers have accumulated $100 billion in additional dollars in credit card debt. And total US household debt topped $16 trillion in the second quarter of 2022 for the first time ever.
Granted, much of that stemmed from mortgage debt. Between house prices and higher borrowing rates, consumers are now taking on more debt to finance a home.
But all things considered, it’s clear that a lot of people have taken a step back financially due to inflation. And it is imperative that those in this position break this vicious circle.
How to stop the bleeding
If you’ve increased your credit card balances, dipped into your savings, or struggled to increase your savings this year, you’re definitely in good company. But it’s important to do what you can to get back on track.
First, set a budget if you don’t already have one in place. There are various tools you can use to make budgeting easier, including some free apps, so play around with your options and see what works best. A budget will make it easier for you to track your expenses and find ways to save money.
Then set priorities. It is unreasonable to take away all luxuries just because the cost of living is higher. But should you reduce some a luxury if you are currently increasing your debts and plundering your savings or ceasing to contribute to them altogether? Absolutely.
Take a look at the non-essential purchases you make on a regular basis and determine which are more or less important to you. Keep spending on the things you really love, but cut back on areas where it won’t impact your quality of life as much.
Finally, consider getting a side hustle. The US economy is teeming with jobs, and that extends to the gig economy.
Working just a few hours a week could help you improve your cash flow considerably. This, in turn, could not only stop increasing your debt, but also start paying off some of it. Equally important, an increase in income could be your ticket to keep pace with savings account contributions – and avoid having to dip into your existing cash reserves.
Hang on there
At some point, the rate of inflation is bound to slow down, and the Federal Reserve takes steps to achieve this by implementing interest rate hikes. In the meantime, do your best to stay on track with financial goals like building up savings, even if it means temporarily changing your habits and schedule. Reducing your expenses for a few months and working in parallel could help you emerge from this period of intense inflation in a much better financial state than you imagined.
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