Americans’ personal savings have fallen off a cliff. Brace yourself for just how much they have declined.

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As red flags go, this is a big one.

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Americans’ personal savings have fallen this year, Reach $629 billion in the second quarter of 2022, according to the Federal Reserve Bank of St. Louis. This is down from $1.98 trillion in Q2 of 2021 and $4.85 trillion in Q2 of 2020, fueled by COVID-related government cash. But that’s less than the $1.41 trillion in the second quarter of 2019, before the pandemic.

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really, personal savings rate — that is, personal savings as a percentage of disposable income, or the share of income after paying taxes and spending money — fell to 3.5% in August, according to economic analysis bureau, It’s quite a U-turn: the personal savings rate recently peaked at 26.3% in March 2021 and 33.8% in April 2020. But the fall in the personal savings rate isn’t all pandemic- in January 2020, before the coronavirus pandemic, it was 9.1%.

,The pandemic has left people in a vulnerable position.,

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“I believe a lot of people’s spending habits went into deep freeze, even when people were stuck at home and the only person they could see on a daily basis was Amazon was the delivery person.” Janet Lee Crochman, a certified public accountant in Costa Mesa, Calif., told MarketWatch. and now? “I think the gloves are off and people are playing catch-up.”

After the worst days of the pandemic, Americans parted ways. “People want to experience life again, and to help create happy memories that aren’t from the pandemic years, to help replace them,” Crochman said. credit-card debt increased $887 billion According to the Federal Reserve Bank of New York, in the second quarter of 2022. That’s 13% on the year – the biggest annual increase in 20 years.

The pandemic has left people in a vulnerable position. On the one hand, stimulus checks led to a record drop in the number of American households without a bank account last year. According to a recent report, the number of non-bank households fell from 7.1 million in 2019 to 5.9 million last year. On the other hand, Americans’ ability to pay bills on time fell for the first time in five years.

how to increase your savings

So what now? Crochman recommends automatic drafts from checking accounts into high-interest savings accounts, “if you can’t get it off your paycheck into some sort of employer-based plan.” Keeping money “out of sight” keeps it “out of mind” and helps prevent impulsive spending, she adds. The 401(k) contribution limit will increase by about 10% in 2023. A good 401(k) The plan comes with a company match, as well as low-cost investment options and low fees.

Others agree with this view. “Move every paycheck to a separate savings account,” said Ted Rossman, a senior industry analyst at Bankrate.com. “Some of these yields are over 3% right now. For example, UFB Direct And dollar savings direct,” he said. “Those are the highest savings rates we’ve seen in years. You are less likely to remember what you don’t see. Pay yourself first.” (a Recent Bankrate Survey found that only 27% of people have six months of expenses left.)

Another strategy: Look for a higher-paying job, ask for a pay raise or be laid off, Rossman said. Sell ​​things you don’t need. Skip the less frequently used subscriptions. Reducing recurring monthly expenses has 12 times the effect of doing the same thing just once. Negotiate low prices. I recently called my cable/internet/phone company and satellite-radio provider and saved enough by just asking for a break. This represents hundreds of dollars in annual savings.”

,Automate your savings and cut spending.,

It’s not all doom and gloom, say economists: There are opportunities to boost savings. The labor market is strong, with unemployment at 3.5% in September. In addition, the US added 263,000 jobs in September, although it was the smallest gain in 17 months. And while average hourly earnings growth slowed from 5% in September to 5.2% in August over the previous year, it’s still one of the fastest growth since the early 1980s.

According to the predictions of most economists, a recession is not expected until next year. Experts say Americans who are struggling to pay rent, utilities and groceries have time to increase their savings. Among his advice: Prioritize paying off high-interest debt; Keep track of spending, whether you use a credit or debit card or cash; See more non-profit organizations like National Foundation for Credit Counseling For-profit debt-settlement companies.

Consider buying generic brands, cut back on eating out and shop at cheap supermarkets. “Take advantage of ‘buy nothing’ groups and thrift stores,” Rossman said. “Repurpose what you already have. Do it yourself if you can, or swap skills and equipment with a friend or neighbor. Repair instead of replace. With that car or cellphone or appliance Get another year. Every little bit counts.”

Read further: Yes, you can prepare for a recession—even if you’re struggling to pay for rent, utilities, and groceries. Now follow these steps.

Credit: www.marketwatch.com /

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