With rumors of a recession in the air, many Americans no doubt want the cushion of a solid emergency savings fund (the pros recommend 3-9 months of essential spending in there). But the reality is this: the majority of Americans don’t feel comfortable with the amount of their emergency savings, even as interest rates on high-yield savings accounts rise (you can see the highest rates you can get on a savings account here.)
Indeed, according to a new survey published by Bankrate, 58% of Americans now feel uncomfortable with the amount of emergency savings they have, compared to just 46% two years ago. Discomfort is higher for millennials than for other age groups. At least 62% of Americans between the ages of 26 and 41 are not comfortable with the amount of their savings, compared to 59% of Gen Xers and 51% of Baby Boomers. According to McBride, the level of comfort and the amount of savings increases with age, thus: “millennials have less savings and less comfort with these savings than their Gen X and baby boomer counterparts” .
This comes as personal savings rates have fallen significantly. According to the latest data from the Bureau of Economic Analysis, the personal savings rate – defined as the percentage of their disposable income that people save – hit 4.4% in April this year (the lowest level since 2008) , compared to 12.6% in the same month of 2021. It was 6% even in January of this year.
Why are more Americans uncomfortable with the amount of their savings?
“Several factors could be contributing to lower savings compared to a year ago, ranging from soaring inflation to people spending more as they regain some sense of normalcy in their lives,” says Christian Mitchell, executive vice president of Northwestern Mutual. With everyday items costing more than before, the purchasing power of the dollar has diminished. For those whose wages have remained unchanged, dipping into savings has become a necessity, thus depleting emergency savings just to cover normal expenses.
Greg McBride, chief financial analyst at Bankrate, also sees inflation playing an important role here. “Inflation at the highest level in 40 years will erode the comfort level and purchasing power of your emergency savings,” he said in a statement.
You can see the highest rates you can get on a savings account here.
How to increase your emergency savings
Grow your income if you can, even if you can only do it temporarily, says Bobbi Rebell, certified financial planner and author of Launching Financial Grownups. “Accept the little jostling and don’t be afraid to ask for a raise,” she says.
“Also, do a spending audit, you may have lingering regular charges from apps or subscriptions that you may no longer use or want to take a break while you build your finances “, explains Rebell.
“If you have consumer or student debt and have multiple monthly payments, consider refinancing or consolidating your debt. This will free up money to save,” says Mamie Wheaton, financial planner at LearnLux. (You can see the lowest rates you can get on a personal loan here.)
You should also consider automatically transferring a portion of your salary directly into a high-yield savings account.
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