American households are feeling the strain on their finances
The economic climate hasn’t been too kind to consumers this year, with inflation and rising interest rates increasing the cost of borrowing. As a result, people are spending more and saving less.
Americans under the age of 40 appear to be getting hit the hardest, according to the New York Fed, which notes this group reported the lowest likelihood of being able to cover a $2,000 expense — 58%, down 10% from three years ago when the COVID-19 pandemic began.
Plenty of folks have also since frittered away the excess savings they accumulated during the pandemic on things they couldn’t experience due to isolation measures, like travel, concerts and dining out, which means there might be little left behind for emergency expenses today.
Some consumers are dealing with higher costs by leaning more on their credit cards, with the share of cardholders seeking an increase in their credit limits reaching 17.8% last month, compared to 11.2% the same time last year.
But average rejection rates for credit cards, auto loan, and mortgage loan refinance applications are higher than they were last year as well, as lenders continue tightening their standards.
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It’s crucial to save up for unexpected expenses
The New York Fed previously reported the national savings rate has actually plunged below the pre-pandemic average.
But it’s incredibly important for people to be prepared for unexpected costs, like a job loss in the event of a recession next year, or a big medical bill or car repair.
Keeping some funds stashed away for a rainy day will prevent you from having to lean on your credit card or drive up your debt load just to cover your costs. Most experts recommend saving for between three to six months’ of expenses.
If you’re already struggling to stretch your paycheck each month for just your immediate needs, a budget is a good place to start. Take note of your regular expenses and income flow, and look for ways to cut down on costs, like streaming subscriptions you no longer use or downloading an app that lets you swiftly compare deals online.
You also want to ensure you’re paying your bills in full and on time every month so that you’re not racking up interest and accumulating more debt that makes it harder to save. This can improve your credit score, so you might be more likely to qualify for that loan you applied for recently or at a lower interest rate.
And lastly, consider talking to a financial adviser who can evaluate your financial situation and get you on track by making a plan and introducing meaningful changes that will help you meet your goals.
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