Only 19% of Americans increased their emergency savings in 2023. ‘This puts households in trouble,’ says expert

  • A new report shows that as inflation and higher interest rates take a financial toll, fewer Americans will be dipping into their emergency funds this year.
  • Most financial professionals recommend setting aside at least six months of expenses, or more if you are the sole breadwinner or run your own business.

Americans are finding it increasingly difficult to save money.

According to a new Bankrate report, 81% of adults said they did not contribute to their emergency savings this year, mainly due to high inflation and rising interest rates, and 60% also said they felt behind when it came to building cash cushion.

“Rising prices and high household spending are the main obstacles to increasing emergency savings,” said Greg McBride, chief financial analyst at Bankrate.

“When expenses grow faster than incomes, it puts households in a difficult situation.”

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So far, most Americans have taken advantage of several government-provided safety nets, especially the large infusion of cash through stimulus programs, which left many households with cash reserves after 2020, according to Sung Won Sohn, a professor of finance and economics . from Loyola Marymount University and principal economist at SS Economics.

However, this cash reserve largely disappeared after consumers gradually spent excess savings from the Covid-19 years.

“Going forward, I’m starting to worry because savings are running out,” he said.

Skyrocketing inflation in the wake of the pandemic has made it difficult to make ends meet. At the same time, the Federal Reserve’s most aggressive rate hike cycle in four decades has made borrowing more expensive.

A customer shops at a Costco store in San Francisco on October 2, 2023.

Justin Sullivan | Getty Images

Most financial experts recommend setting aside at least three to six months of expenses, or more if you are the sole breadwinner or run your own business.

To improve your cash cushion, “you have to do what works for you,” McBride said.

“Significant reductions in household spending may not be feasible given the rise in prices of basic items such as shelter, food and energy over the past few years.”

Instead, “consider taking advantage of the tight labor market by taking on a side hustle, being self-employed or contracted, or even taking on a second job for a period of time to make progress on increasing your savings,” McBride said.

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