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Most Americans are in a substantially better financial state than they were at the beginning of the pandemic. Incomes have increased while spending has decreased, resulting in a significant increase in savings. According to MoneyTransfers.com, US household savings balances have increased by $2.5 trillion since the CODIV-19 pandemic began.
Speaking on the data, MoneyTransfers.com CEO, Jonathan Merry, said,
It’s really quite incredible to see such a huge increase in savings during what has been such a difficult time for so many people. It just goes to show how much people have been able to cut back on their spending, and how they are now in a much better position to weather any future financial storms. The data suggests that people are now “thinking more long-term” and are “more cautious with their money.”
MoneyTransfers CEO, Jonathan Merry
In the face of high inflation and an uncertain economic outlook, it is understandable that people are choosing to save rather than spend.
Interest Rates on Savings
Notably, the swift decline in interest rates on savings has not halted or slowed the growth of the savings account balance total in the U.S. Instead, it has actually contributed to the increase in savings as people seek to preserve the value of their money.
Saving refers to the strategy of squirreling away money for future use. The purpose of saving is to have the funds available when you need them, whether for a rainy day or a retirement nest egg.
There are two types of savings: short-term and long-term. You set aside short-term savings for immediate needs like an emergency fund or a down payment on a car. You put away long-term savings for future goals, such as retirement.
The best way to save money is to have a specific goal in mind and to make a plan to reach that goal. Start by setting aside a fixed amount of money each month to reach your goal.
If you don’t have a specific goal in mind, start by building up an emergency fund to cover three to six months of living expenses. Once you have that fund in place, you can start saving for other goals.
Inflation Hurts Savings
Inflation has been a key concern for savers in recent years. When prices rise, the purchasing power of your savings goes down. In other words, your money doesn’t go as far as it used to.
One way to protect your savings from inflation is to invest in assets that have the potential to keep pace with or exceed the rate of inflation. This includes stocks, real estate, and certain types of bonds.
Another way to combat the effects of inflation is to regularly adjust the amount you save each month to account for the rising cost of living.
Saving money is important, but it’s not the only factor to consider when it comes to your financial well-being. You must also focus on building your wealth to reach your long-term financial goals.
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