Are your savings also taking a hit?
- Inflation is impacting a lot of people’s spending.
- It’s also making it harder for people to meet their financial goals.
If you’ve been keeping tabs on your credit card bills, you may have noticed that everything from gas to groceries to apparel is costing you a lot more. We can thank inflation for that.
In April, the Consumer Price Index, which measures changes in the cost of consumer goods, rose 8.3% on a year-over-year basis. And in light of rising living costs, many people have no choice but to change the way they spend — and save.
In fact, 65% of adults say that because of inflation, they’re cutting back on short-term spending to stay on track with their long-term financial goals, according to the latest New York Life Wealth Watch Survey. Survey respondents said they’re dining out less frequently, limiting travel, and holding off on home renovations due to current economic conditions.
At the same time, though, rising living costs are making it harder for consumers to contribute steadily to their savings accounts. In fact, Americans are saving an average of $243 less per month due to inflation.
Among millennials, that number is even higher. Younger workers are contributing an average of roughly $289 less per month to their emergency savings.
All of this is problematic, though, because not having a complete emergency fund means risking a host of unwanted financial consequences from, say, a job layoff. And so it’s important for consumers to do their best to stay on track with their savings — even as living costs spike.
How to stay on top of your savings
Underfunding your emergency savings could put you in a tough spot if you were to lose your job or encounter a large bill your regular paycheck couldn’t cover. But contributing to an emergency fund is easier said than done when living costs keep rising.
One good bet, though, is to put yourself on a budget. That way, you may have an easier time identifying spending categories you can cut back in.
It also pays to look at getting yourself a side hustle. You may only be able to stretch your regular paycheck so far as the cost of living increases. But if you take on a side gig, that’s money you weren’t counting on to pay your bills with. As such, you should be able to take all of it and use it to pad your savings (minus the portion you owe the IRS for tax purposes).
Stick to your goals
It’s understandable that Americans are being forced to reduce their savings rates in the wake of higher living costs. But it’s also important to have a fully loaded emergency fund. If you’re not there yet, do what you can to keep funding your savings account, even if it means having to make temporary budget cutbacks or pushing yourself to plug away at a second job in your spare time.
At some point, inflation is apt to taper off and consumers should get some relief. But we’re not there yet, and it’s important to protect yourself with a full emergency fund regardless of what economic conditions look like.
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