For the past two years, more and more data has shown that the pandemic was a boon for savers. The personal savings rate — the percentage of income Americans put away for rainy days — was up for much of 2020 and 2021, according to the Bureau of Economic Analysis.
Now another data point highlights the good saving habits that Americans have recently learned: 44% of people have enough savings to cover an unexpected $1,000 expense, according to a recent Bankrate survey.
That's a 5-point increase from 2021 and the highest it's been in the last eight years that Bankrate has asked that question.
The pivot to super-saving behavior despite the economic uncertainty triggered by the pandemic is likely due, at least in part, to stimulus doled out by the federal government, says Greg McBride, chief financial analyst at Bankrate: "That's what I attribute the increase to, versus previous years."
Other positive factors have played a role, too, though, he notes, like the drive to "reduce spending in some areas like discretionary purchases of travel or sporting events and concerts, and a renewed focus on emergency savings."
Despite these good indicators about people's personal balance sheets, there are lots of financial headwinds that are likely to slow much of that momentum. McBride says. "Going forward, without stimulus and with inflation on the rise and putting a further squeeze on the household budget, I'm not optimistic that we can replicate the progress of the last 12 months in the next 12 months," he says.
The most recent numbers from the Federal Reserve and the Bureau of Labor Statistics already bear that out: Both the personal savings rate and the total amount of excess savings dipped below their pre-pandemic levels in the final months of 2021, and year-over-year inflation is currently higher than it's been in 40 years.
While the share of Americans who could afford to pay for a $1,000 expense with their savings is the highest it's been in eight years, it still represents less than half the population, McBride points out. And 20% Americans would cover that kind of unexpected bill with a credit card, up from 18% in 2021.
That number was even higher, 27%, for people between the ages of 26 and 32.
Using credit cards at that age to pay off that kind of expense can be a risky proposition, McBride says. "Putting an unplanned expense on a credit card at an interest rate in the high teens will take a long time to pay off, especially if you're making little more than the minimum payment."
Even though McBride predicts that overall savings will no longer be as robust in 2022 as they were in the previous 18 months, consumers would still be wise to prioritize saving.
McBride's best tip for saving? "Automate it," he says. "Make that habit happen. Set up a direct deposit from your paycheck into a dedicated savings account."
Set up a deduction to occur automatically, online, the day you get paid. Even $25 or $50 per paycheck can make a big difference, thanks to compound interest, especially if that money goes into a high-yield savings account.
"You don't have to do a lot," agrees Marguerita Cheng, a CFP and founder of Blue Ocean Global Wealth. "Even $25 or $50 per paycheck" is OK, she says. Plus, with time, "what was uncomfortable becomes more comfortable."
Automation is one of the most popular ways to make saving a seamless part of your monthly budgeting. It tops the list of tips for several CFPs, including Katarzyna Marczyk, a CFP and president and CEO of Anchor Wealth Management Group in West Palm Beach, Florida.
But Marczyk takes it one step further. Use "a separate account to build up cash reserves, aside from [your] working account," she says. "Set up a basic budget and pay yourself first every month. It's much easier to save before you spend."
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