Americans Spent $1 Trillion From Their Savings in 2022

What happened

U.S. consumers have spent more than half the savings they accumulated during the initial stages of the COVID-19 pandemic, according to research from J.P. Morgan Asset Management. From March 2020 to August 2021, they amassed $2.1 trillion in excess savings. J.P. Morgan defines excess savings as anything saved above and beyond what consumers normally put away.

Since then, they've had to tap into those funds. In early 2022, Americans had $1.9 trillion in excess savings balances. By the end of the year, that had dropped to $0.9 trillion, in large part due to rampant inflation. The hope is that this changes in 2023, as "there are convincing signs that an inflation down trend is now underway," said Dr. David Kelly, Chief Global Strategist for J.P. Morgan Asset Management in the latest Guide to the Markets update.

So what

Despite the economic uncertainty in the early stages of the pandemic, many Americans were able to improve their personal finances. People prioritized saving money for financial security. That, combined with stimulus checks and enhanced unemployment benefits, allowed consumers to significantly increase their savings rates.

Having enough savings is important for every adult. Financial experts have traditionally recommended that adults have an emergency fund with at least three to six months of living expenses. Since the pandemic, some financial experts have increased their recommendations to as much as 12 months in emergency savings.

With savings rates falling, it puts consumers in a more precarious position. If you've been one of the many who needed to spend their savings over the last year, it could leave you vulnerable if an emergency happens. Insufficient savings also makes it harder to reach your money goals.

Now what

Although saving money has been challenging due to inflation, it's one of the most important financial habits. If you've had to dip into your savings, here are good ways to get back on track:

• See where you can spend less. It's never fun to tighten up your budget, but it's better than losing ground financially. Look for expenses you can cut or reduce for the time being.
• Try budgeting apps to better manage your money. These help you make the most of your income and track where your money goes.
• Make sure you have a secure source of income. This makes it less likely you'll need to tap into your savings. Consider starting a side hustle or picking up some freelance work, as multiple streams of income are better than one.
• Use all the savings tools available to you. If you have good credit, make sure you're using a cash back credit card. Before you shop for anything, check coupon apps to see if there are deals available.

You might not be able to save as much as you were early on in the pandemic. That's understandable, as economic conditions have changed. Even if you need to lower your savings rate, do your best to save something every month so that you continue to progress financially.