If you’ve found yourself dipping into your savings to deal with inflation, you’re not alone. A Forbes Advisor survey found that two-thirds of Americans say they’re using savings as prices for goods and services continue to spike.
During the COVID-19 pandemic, U.S. households started to save. At the end of 2021, Americans stashed away a combined $2.7 trillion, according to Moody’s Analytics.
But as the world reopened, so did wallets.
“I was so inclined to do things now that I had that money saved, and I was like, ‘Cool, great, I have this, so much money,'” California resident Jennifer LaMonaca said. “And now I want to hang out with my friends, I want to go to happy hour, I want to go to brunch. I want to go those places.”
This urge to go out again, combined with soaring inflation caused by strong consumer demand, a hot labor market and outside factors such as the war in Ukraine, have caused people’s rainy day funds to dwindle. The latest data from the Bureau of Economic Analysis shows people’s personal savings rates were just under 5.5% in May. That’s very close to its lowest rate since the 2008 recession.
“With inflation the highest it’s been in 40 years, everyone has taken a pay cut. At the same time, we’re all trying to race out, take vacations, go out to happy hours,” said Dan Roccato, a finance professor at the University of San Diego. “That money has to come from somewhere.”
Still, Roccato says, there are a few ways people can start making small changes and build their savings back up.
- Go through your budget: “I guarantee you there’s at least one streaming service that you picked up and I picked up over the course of the pandemic that we probably don’t need. Get rid of it.”
- Defer major purchases: “Now’s not the time to sign up for some big-money buys. Let’s wait on those for a few months at least.”
- Focus on whittling down credit card debt: “A lot of us have credit cards the size of Wyoming. Let’s see if we can get those balances down. That’ll free up some space in our budgets.”
- Add a side gig: “Maybe you got some spare time. You can walk some dogs, babysit some kids, whatever the case may be, but add another stream of income.”
Roccato’s main advice, especially for those living paycheck to paycheck, is to tuck away one’s month’s worth of savings. Then, do the same next month.
“Let’s focus on that baby step,” Rocatto said. “Let’s take it one month at a time.”