Most Americans are still struggling to build solid savings accounts nearly two years into the coronavirus pandemic.
Some 56% of Americans are unable to cover an unexpected $1,000 bill with savings, according to a telephone survey of more than 1,000 adults conducted in early January by Bankrate.
“Emergency savings and the $1,000 threshold are really an indication of how much people are struggling, that they are that close to the edge financially,” said Greg McBride, senior vice president and chief financial analyst at Bankrate.
Instead of drawing on their emergency savings funds, many Americans would have to go into debt to foot an unexpected $1,000 bill, either by asking family and friends for a loan, taking a personal loan from a bank or charging a credit card.
Barriers to saving
To be sure, the 44% of Americans who could cover a $1,000 emergency expense from their savings is the highest percentage in eight years, according to Bankrate.
In addition, some adults fare better than others in building and keeping solid emergency savings. Nearly 60% of those with college degrees could cover a $1,000 expense, as could more than half of people who make $50,000 a year or more.
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Still, rising costs are also making it difficult for Americans to save. Inflation surged 7% in the last year, the fastest pace in 40 years, according to the U.S. Bureau of Labor Statistics’ December consumer price index release. Nearly all costs measured by the index increased in December, with the prices of shelter, used cars and trucks, energy and food boosting the measure most.
Nearly half of Americans said that higher costs are keeping them from saving more, according to Bankrate.
“Just about every expense to run a household has gone up,” said Tania Brown, a Lawrenceville, Georgia-based certified financial planner and founder of FinanciallyConfidentMom.com. In addition, she added that parents may be especially struggling if their children are in and out of school due to Covid, which not only impacts budgets but how much some can work each week.
How to build savings this year
For people who want to continue saving or start working on building an emergency fund now, it likely means they’ll need some creative budgeting, Brown said.
“To me, the biggest contributing factor in finances is behavior,” she said, adding that if you can make shifts to your spending habits, it will help you save.
That may mean making cuts to cable and streaming platform subscriptions or deciding to buy less meat at the grocery store, in order to save money. People could also sell clothes they’re no longer planning to wear and make changes to their homes to save on energy bills.
It may also be time for people to diligently shop for deals and start using coupons to keep costs down, or even commit to a no-spend period, Brown explained.
“For the stuff that’s not that important, cut mercilessly,” she said.
Once you’ve made cuts, you should also be intentional about where that extra money is going. Make sure you’re sending every found dollar to an emergency savings fund or to pay down debt, Brown said.
“Your lifestyle can’t creep up with the changes,” she said. “There has to be almost an obsession, a compulsion with prioritizing savings and serious intentionality on where you spend money.”
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