Suze Orman speaks during AOL’s BUILD speaker series at AOL Studios in New York.
Jenny Anderson | Wire image | fake images
An unexpected bill is never convenient.
But now there are even more reasons why an unforeseen event, like a car repair or medical expense, could put Americans on a shaky financial footing.
Blame it on record high inflation, which has soared to the highest levels in 40 years and pushed up the prices of everything, including grocery store staples like butter, lettuce and dairy.
Looking ahead to 2023, there are also risks of recession looming. The question is whether a recession would be mild or prolonged, while major tech employers like Amazon and Google have already started cutting jobs.
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Meanwhile, the federal government has reached the debt ceiling. Now it’s up to lawmakers to find a solution so the US government can continue to pay its bills.
“We’re having a financial pandemic right now, if you will,” personal finance expert Suze Orman told CNBC.com.
“It’s a … more dangerous scenario now than it was during the pandemic,” Orman said of the current financial risks facing Americans.
Many Americans were able to set aside more money than usual during the Covid-19 pandemic, as government aid meant additional unemployment benefits for Americans out of work longer, while millions of individuals and families received stimulus checks.
Those federal funds are now dwindling, Orman said, as bills, including rents that have, in some cases, tripled and mortgage interest rates that have risen more than they were before the pandemic, begin to beat.
The environment may be the wake-up call many Americans need, he said.
“You have to have an emergency savings account whether you’re in a recession or not,” Orman said.
Americans living paycheck to paycheck
There has never been a better time to set aside cash for emergencies.
However, saving a significant sum of money remains a challenge for many Americans.
A new survey finds that 74% of Americans are now living paycheck to paycheck, according to SecureSave, a fintech company that aims to help workers set aside emergency savings through their employers.
As inflation has skyrocketed, more than half of those surveyed (54%) have reduced their savings in the past year, according to SecureSave’s November online survey of more than 1,000 US adults.
Some 67% of workers cannot afford to pay a $400 emergency expense.
Among the things Americans regret most about their personal finances is the lack of saving for emergencies.
senior economic analyst at Bankrate.com
Orman co-founded SecureSave during the pandemic after telling people for 40 years that they needed to have a savings account, he said.
“Our goal was very simple: Let’s see if we can change the savings rate in the United States for those who have never saved a penny before,” Orman said.
Many people often do not reach that goal. A new Bankrate.com survey reveals that the majority of adults, 57%, cannot afford a $1,000 emergency expense.
“People just can’t do this on their own,” Orman said. “The key is not to see it on your paycheck.”
Through SecureSave, workers can have savings, like $25, automatically deducted from their paycheck, and then they can also receive a $3 or $5 match from their employers.
At the end of a year, people are often surprised by the amounts they save, whether it’s $600 or $1,000, Orman said.
“They love it,” he noted. “And many times they will increase your paycheck contribution.
“Once you start to see how easy saving is, the more you like to save,” Orman said.
By hoarding the cash you have on hand, you may be able to avoid reaching for credit cards as interest rates rise.
Until then, 25% of consumers surveyed by Bankrate.com said they would collect an unexpected expense of $1,000 or more and pay it off over time.
That strategy would be even more expensive now, with new credit card offers for even the most qualified people at interest rates of nearly 20%, said Mark Hamrick, a senior economic analyst at Bankrate.com.
How Savings Can Help Other Financial Goals
Guido Mieth | digital vision | fake images
Setting up emergency savings with an employer is just the first hurdle to financial wellness, according to Orman.
The next goal is to save eight to 12 months’ expenses in a separate savings account, Orman said.
Even workers who are short of cash should contribute enough to their retirement accounts up to an employer match, if any.
“You can’t pass up free money,” Orman said.
As workers reduce their financial stress, that can help employers, too. Nearly 30% of workers say they spend an hour or two a day worrying about money, according to SecureSave.
It can also help avoid regrets later, according to Bankrate.com’s Hamrick.
“Historically, we’ve found that among the things Americans regret most about their personal finances is a lack of saving for emergencies,” Hamrick said. “The other is the lack of retirement savings.”