- The personal savings rate among Americans fell to 5.1% in June, the lowest since August 2009.
- Credit card debt among consumers also rose substantially.
Savings rates are down, and there's a reason why.
It's not really a secret that Americans are feeling the (financial) pain as a result of rampant inflation. But new data from the New York Federal Reserve reveals just how much higher living costs are impacting consumers' finances.
In June, the personal savings rate among Americans fell to 5.1%, marking the lowest level of savings since August 2009. Meanwhile, over the past year, consumers have racked up an additional $100 billion in credit card debt. And total U.S. household debt surpassed $16 trillion during the second quarter of 2022 for the first time ever.
Granted, much of that stemmed from mortgage debt. Between higher home prices and borrowing rates, consumers are now taking on more debt to finance a home.
But all told, it's clear that a lot of people have taken a step backward financially due to inflation. And it's imperative that those in that position break this vicious cycle.
How to stop the bleeding
If you've been adding to your credit card balances, dipping into your savings, or struggling to add to your savings this year, you're no doubt in good company. But it's important to do what you can to get yourself back on track.
First, set up a budget if you don't have one in place yet. There are different tools you can use to make budgeting easier, including some no-cost apps, so play around with your options and see what's best. A budget will make it easier to track your spending and find ways to cut corners.
Next, set some priorities. It's not reasonable to cut out every single luxury just because living costs are higher. But should you be cutting back on some luxuries if you're currently adding to your debt and raiding your savings or ceasing to contribute to them altogether? Absolutely.
Take a look at the non-essential purchases you make regularly and figure out which are more and less important to you. Keep spending on the things you really love, but cut back in areas where doing so won't impact your quality of life as much.
Finally, consider getting a side hustle. The U.S. economy is loaded with jobs, and that extends to the gig economy.
Working just a few hours a week could help improve your cash flow tremendously. That could, in turn, make it possible to not only stop adding to your debt, but to also start paying some of it off. Just as importantly, an income boost could be your ticket to keeping up with savings account contributions -- and avoiding having to tap your existing cash reserves.
Hang in there
At some point, the rate of inflation is bound to slow down, and the Federal Reserve is taking steps to make that happen by implementing interest rate hikes. In the meantime, do your best to stay on track with financial goals like building savings -- even if it means having to adjust your habits and schedule temporarily. Cutting back on spending for a few months and working a side hustle could help you emerge from this period of intense inflation in a much better place financially than you might have imagined.
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