Americans are paying more for gas, groceries, and other items than they have in years.
The U.S. inflation rate reached 8.58% at the end of May 2022, much higher than the average of 3.25% and the Federal Reserve’s target inflation rate of 2%.
Rather than cutting spending in response to the higher prices, Americans are cutting their savings. The personal savings rate dropped to 5.4% in May, well below the average rate of the past decade and far below the record high of 34% in April 2020.
Clearly, Americans may be cutting back on saving money to afford the higher prices of everyday goods. But the plummeting savings rate isn’t just because of higher prices: Consumers are spending more on goods and services than they were before the pandemic, even when the figures are adjusted for inflation, according to Fortune.
Even if money is tight, it’s important to find ways to keep saving money. Maintaining that financial discipline may help you manage through the current environment—and will help you build a cushion for the coming days.
Why You Should Prioritize Savings
Making a commitment to save a portion of every paycheck is sometimes described as “paying yourself first.” Before you pay other bills, you pay your (future) self by putting some money in savings. Prioritizing savings is important because it can help you reach financial goals and provide a financial cushion when you need it.
Everyone experiences unexpected expenses from time to time, such as a major home or car repair or a surprise medical bill. In more severe cases, a job loss or layoff can completely upend your finances. However, when the unexpected happens, a healthy savings account can often keep you afloat. When you do need to use your savings to cover an unplanned expense, don’t get discouraged. Resist the urge to give up on your savings plan and simply work to get back on track.
Prioritizing savings can help you make smarter choices about your money and prepare you for the inevitable emergency.
How to Prioritize Savings in the Current Environment
Saving money might be important, but it’s challenging as prices continue rising. However, ongoing inflation often precedes a recession—so we may have more challenging days to come. If that’s the case, having extra savings on hand will be even more important.
Figuring out how to make saving money a priority may not be easy, but it’s doable. Consider these three tips to help you.
Rethink your budget. As prices soar, savings may be the easiest thing to cut out of your budget, but there are likely other items you can cut. Take time to pore over your monthly budget and look for other areas to cut, such as:
- Subscriptions. Do you really need four streaming services?
- Memberships. How often do you really go to the gym?
- Fuel. Could you carpool, walk, or use public transit?
- Dining out. Save money by going out for lunch rather than dinner, or look for specials.
- Groceries. With digital coupons, clipping and saving coupons has never been easier.
Make it automatic. Set up automatic deposits into your savings account from each paycheck, or on a weekly or monthly basis. When you don’t have to manually move money from checking into savings, you’re less likely to miss the money.
Put savings in an account that isn’t easily accessible. Consider building savings in an account at a different bank than your normal bank, or in an online account that doesn’t allow immediate withdrawals. When your savings isn’t immediately accessible, you’ll be less likely to make withdrawals for non-emergencies.
Establishing a habit of saving can help you avoid unnecessary debt and be prepared for the unexpected. Savings can also help ensure that you’re able to cover bills and debt payments even in a crisis.
