The US inflation rate jumped to 9.1% in June – the highest inflation percentage since July 1981. (July inflation figures are due to be released on August 10.)
The inflation figure has become a focal point among economists, politicians and the media as the chattering class debates its impact on the economy and whether the US economy is in recession.
Meanwhile, the Great American Consumer simmers on the sidelines, digging even deeper into their pockets these days to cover basic household expenses. Prices have risen so much that US households are raiding their savings accounts to pay the bills and keep food on the table.
Case in point: Found a new report from New York Life As inflation drives up the cost of living, American adults report taking an average of $616.73 a month from their savings to meet higher daily expenses.
The New York Life survey also showed that macroeconomic factors, including inflation (65%), health care costs (34%) and the national economic recovery (32%) are the biggest factors dragging down household budgets. All are considered “most effective” for Americans’ personal sense of financial security.
“The financial picture of many Americans has changed significantly since the beginning of the year, and we’re seeing the positive expectations that many Americans have for their finances in 2022 are slowly fading,” said Aaron Ball, senior vice president and head of insurance business solutions , Service and Marketing at New York Life.
Savings are “used up”
Financial gurus say any lingering economic pain to households can wreak lasting damage on Americans struggling to stay afloat financially.
“When consumers make a habit of drawing from their savings, important savings are used up for spending and emergencies,” said Ken Tumin, founder of DepositAccounts.com.
“This will lead to more consumer debt, which will be particularly painful due to rising interest rates. Less savings for emergencies combined with more debt could leave many consumers in a financial hole and make building for retirement impossible.”
In fact, the New York Life Survey points out that nearly two-thirds (64%) of Americans said they could save enough money to last a lifetime in July. That’s less than 74% of US adults who said so in January. The report also cites a sharp drop in the number of Generation Zers and Millennials who say they are on track to retire.
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The picture gets even grimmer for household savings when a sudden event puts another dent in personal savings accounts.
“Using savings to offset rising living costs can only be short-lived,” said Herman “Tommy” Thompson Jr., board-certified financial planner at Innovative Financial Group in Atlanta. “Eventually, a family needs to reduce spending or increase income.”
Unfortunately, this adjustment in personal savings is usually caused by unforeseen expenses.
“A sudden health event, car accident, or defective HVAC unit comes at the worst possible time and wipes out the remaining savings,” Thompson said.
“At this point, the family has no choice but to change their spending habits or increase their debt. According to the Federal Reserve, consumer credit increased by $40.15 billion in June.”
Time to cut back on spending and get creative
For Americans who are dismayed that their household savings are dwindling, money experts are advising them to tighten their belts and get creative with spending.
“Review your budget again and see if you can adjust discretionary spending downwards,” said Michael Liersch, head of advisory and planning at Wells Fargo Wealth and Investment Management in New York.
“For example, learn to negotiate with discretionary providers such as cell phone providers, cable/streaming services, gyms, etc., especially if those companies offer negotiable promotions to ‘new’ customers.”
It’s also a good idea to look for products that can replace higher-priced items, such as B. Private Label Grocery Items. “Also, the holiday season is still a few months away so you should start shopping now to avoid big bills at the end of the year,” Liersch told TheStreet.
If you’re currently evaluating major purchases, invest in quality products that are likely to require less maintenance and last longer.
“This reduces the likelihood that high-priced items will need to be replaced at short notice while prices are rising rapidly,” added Liersch. “Alternatively, consider deferring the purchase if possible. “After all, do you need to replace your car or fridge now?”