When the COVID-19 pandemic hit, all the fixtures of a normal life came to a screeching halt. Americans said goodbye to everything from after-work happy hour drinks and big vacations to expensive gym memberships.
But even as the door closed on those things, a window of opportunity did open. All that money consumers would have spent on frivolity or fun instead went towards building up their personal savings.
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In April 2020, the personal savings rate spiked to 33.8% — the highest it has ever been since Jan. 1959, according to the Federal Reserve Bank of St. Louis. But as COVID restrictions started to lift and scorching-hot inflation set in, that trend started to reverse.
As of Nov. 2022, Americans are now saving just 2.4% of their disposable income, says the St. Louis Fed. And many people are barely able to save that, with an increasing percentage of workers — of all income brackets — now living paycheck to paycheck.
But with layoffs already starting to happen, still-high inflation and rising interest rates, many Americans will find they need to lean hard on their savings in 2023. Here’s how to help build up a healthy savings cushion.
Cutting expenses
When we talk about savings, we’re referring to whatever disposable income you have left over after subtracting your expenses. If you’re finding there’s not enough left after you pay your mortgage, utility bill, car payments and whatever else, you have two options: you can either increase your income or lower your expenses.
Break down your expenses into what’s essential and what’s a nice-to-have. You need to keep the lights on but do you really need to buy a new television?
Maybe not, according to Amazon founder and executive chairman Jeff Bezos recommends.
“If you're an individual considering purchasing a big-screen TV, you might want to wait, hold onto your money, and see what transpires,” Bezos told CNN. “The same is true with a new automobile, refrigerator, or whatever else.”
Once you’ve removed all the unnecessary items, you might be able to lower expenses on costs that you can’t avoid, like auto insurance.
The best way to save on insurance is to shop around. Each insurance company has its own underwriting process, which means depending on how they weigh certain factors, you could save hundreds of dollars a year by shopping around.
And the same principle applies for home insurance.
Boosting your income
Switching jobs can seem daunting.
But data from Pew Research suggests that 60% of people who switched jobs or employers between 2021 and 2022 saw their income increase. Meanwhile, fewer than half of people who stayed at their jobs saw any wage growth.
So if you’re looking to build up some savings, leaving your current role or employer for a better opportunity may be your best bet at getting the salary increase you’re hoping for.
If you don’t want to switch jobs, you could consider picking up a side hustle — by turning a talent or skill into a profitable part-time job. It allows you to earn extra income — and could even be a way of testing the entrepreneurial waters.
If that sounds overwhelming, keep it simple. Picking up the occasional tutoring session could be worth $75 to $90 an hour. And if you’re an outdoorsy or active person already, consider that dog walking could net you as much as $1,000 a month.
Read more: Americans are paying nearly 40% more on home insurance compared to 12 years ago — here's how to spend less on peace of mind
Putting spare change to work
Finally, keep in mind that when it comes to savings, the sooner you start, the better. You may believe you need a minimum amount to kickstart building your financial safety net.
But you shouldn’t overlook the power those nickels and dimes in your pocket can have. A survey from MyBankTracker found that 55.5% of Americans don’t do anything with their spare change. They just let it sit. But those coins quickly add up and you can put them to work.
When you make a purchase on your credit or debit card, some apps automatically round up the price to the nearest dollar and place the excess — the coins that would wind up in your pocket if you were paying cash — into a smart investment portfolio.
Your spare change may not seem like much. But take a look at this math: $2.50 worth of daily round-ups adds up to $900 per year — which can then earn more money in the market.
Get expert financial advice
Building up your savings can certainly be nerve-racking — especially with a potential recession peeking around the corner.
One solution to help you sleep better: Find a financial adviser who can help navigate your finances and make sure your assets are safeguarded.
Researching and calling multiple financial planners can be a time-consuming hassle, but there are ways you can easily browse vetted advisers that fit your needs. Booking a consultation is free and only takes a few minutes.
If you're unsure how to safeguard your savings during a recession, it’s better to find answers sooner than later, while time is still on your side.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
