Are your savings also suffering?
- Inflation has an impact on the expenses of many people.
- It also makes it harder for people to reach their financial goals.
If you keep an eye on your credit card bills, you may have noticed that everything from gas to groceries to clothes costs 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% year over year. And in light of the rising cost of living, 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 cut 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 are dining out less often, limiting travel and delaying home renovations due to current economic conditions.
At the same time, however, the rising cost of living is making it harder for consumers to contribute regularly to their savings accounts. In fact, Americans save an average of $243 less per month due to inflation.
Among millennials, that number is even higher. Young workers contribute on average about $289 less per month to their emergency savings.
All of this is problematic, however, because not having a comprehensive emergency fund means risking a host of undesirable financial consequences, for example, layoff. It is therefore important that consumers do their best to stay on track with their savings, even when the cost of living increases.
How to keep control of your savings
Underfunding your emergency savings could put you in a tough spot if you were to lose your job or run into a big bill that your regular salary couldn’t cover. But contributing to an emergency fund is easier said than done when the cost of living continues to rise.
A good bet, however, is to put yourself on a budget. This way, you may have an easier time identifying the expense categories in which you can cut.
It’s also worth looking to make a scramble for yourself. You may only be able to stretch your regular salary to the extent that the cost of living increases. But if you take a side gig, that’s money you weren’t counting on to pay your bills. As such, you should be able to take all of it and use it to build up your savings (minus the part you owe the IRS for tax purposes).
Stick to your goals
It is understandable that Americans are forced to reduce their savings rate following the rise in the cost of living. 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 cuts or push yourself to take on a second job in your spare time.
At some point inflation is likely to subside and consumers should be relieved. But we’re not there yet, and it’s important to protect yourself with a comprehensive emergency fund, regardless of economic conditions.
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