Personal savings hits low in 2022, how to boost your account balance

New data from the Bureau of Economic Analysis (BEA) found that Americans are slacking on their savings—despite seeing a boost in their income. 

Personal income increased $155.3 billion (0.7%) in October, according to the bureau’s estimates, and disposable personal income (DPI) increased $132.9 billion (0.7%). The downside: increased income hasn’t translated to greater savings. Personal saving was $426.5 billion in October and the personal saving rate (personal saving as a percentage of disposable personal income) was 2.3%, that’s the lowest it’s been since 2005. 

Why are Americans saving less? 

Experts are chalking down this lower saving rate to a few different factors. 

  1. Consumers’ spending habits are changing. 
    The height of the pandemic saw an increase in the personal saving rate. According to the bureau, personal savings hit $4.12 trillion in May 2020 and the personal saving rate was 23.2%. “Those I speak with who have the financial ability seem to be spending the savings they have on home improvements and travel,” says Brian Kuhn, CFP®, CLU®, CLTC®, and a financial advisor at Wealth Enhancement Group. “The trend of working from home continues to cause interest in improving those spaces, and people are making up for lost time by traveling as well.”
  1. Inflation is putting pressure on savers’ wallets. According to the most recent Consumer Price Index (CPI), the index that measures the average change in prices over time, over the last 12 months, the all items index increased 7.7% before seasonal adjustment. “Inflation is the most visible reason people are able to save less of their income,” says Kuhn. “The same things they were buying before now cost more, such as food and entertainment, and they’re using the same amount of income to buy them.” 

The case for prioritizing your savings account

Using your disposable income to splurge on some of your “wants” or bucket list items can be okay if done so in moderation. But it shouldn’t come before saving for important milestones like becoming debt-free, building an emergency fund, or retirement. It takes time to build an adequate emergency fund that covers your basic living expenses, but having this safety net is crucial and can save you from financial ruin if you experience a hardship like losing your job or unexpected medical bills. 

Less than half of Americans have enough savings to cover a $1,000 emergency, according to a Bankrate survey. And around 35% of those surveyed said they would cover the cost of an emergency using a credit card or a personal loan, or by borrowing money from family and friends. And while credit cards and loans can be valuable tools for financing life’s more expensive purchases, relying on debt as a solution to your financial woes can lead to unmanageable, high-interest balances and make it more difficult to hit your long-term goals. 

How do I boost my savings?

There are several ways you can work to grow your balance or replenish any funds you may have spent. A few ways to maximize your savings: 

  1. Choose the right savings vehicle. The best way to grow your savings with minimal effort is to shop for the right account. Keeping your funds in a traditional savings account may earn you some interest on your balance, but alternatives like a high-yield savings account, certificate of deposit (CD), or money market account offer significantly higher APYs, on average—especially in the aftermath of the Fed’s most recent rate hikes
  2. Tweak your budget and direct more toward your savings account. If it’s been a while since you last checked in on your budget, consider running through your regular expenses to determine if there are areas where you can cut back and reduce the number of spending categories or lower costs by negotiating your bills. If your credit card bill is eating into your budget, call your credit card company and ask them to lower your APR. You can also review your phone plan and see if there’s a way to lower your bill by cutting out extra features you don’t use. Insurance premiums are also up for negotiation, shop around to see if you can score a lower rate or bundle your policies to save and shift those funds over to your monthly savings contribution. 
  3. Increase your savings contributions whenever possible. Whether it’s an end-of-year bonus, your yearly raise, or extra income from a side hustle, designate a portion of that extra money for your savings goals. While it can be tempting to use those funds for short-term wants, you should be adjusting your savings contributions as your income grows and you have more money to work with. Plus, boosting those contributions could help you cut down on the amount of time it takes you to hit your savings goals. 

The takeaway 

If you went from being a saver to a spender, now is the time to shift gears and get your savings account(s) back on track. By choosing the right savings vehicle for your needs, implementing a disciplined budgeting strategy, reducing your expenses, and increasing your savings contributions over time, you can ensure that your future self will have a nice cushion to cover emergency costs and fund future goals.

Follow Fortune Recommends on Facebook and Twitter.

EDITORIAL DISCLOSURE: The advice, opinions, or rankings contained in this article are solely those of the Fortune Recommends editorial team. This content has not been reviewed or endorsed by any of our affiliate partners or other third parties.

Source link