Suze Orman speaks during AOL’s BUILD Speaker Series at AOL Studios in New York City.
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An unexpected bill is never convenient.
But there are even more reasons now that an unforeseen event — like a car repair or medical bill — could put Americans in a financially unstable position.
Blame it on record inflation, which hit 40-year highs and drove up the prices of everything, including grocery store staples like butter, lettuce and dairy.
As 2023 approaches, recessionary risks also loom. The question is whether a downturn would be mild or prolonged, as major tech employers like Amazon and Google have already begun cutting jobs.
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Meanwhile, the federal government has reached the debt ceiling. It is now up to lawmakers to find a solution so that the US government can continue to pay its bills.
“We have a financial pandemic now, so to speak,” personal finance expert Suze Orman told CNBC.com.
“It’s a scenario … more dangerous now than it was during the pandemic,” Orman said of the current financial risks Americans face.
Many Americans were able to set aside more money than usual during the Covid-19 pandemic as government assistance meant additional unemployment benefits for Americans out of work for 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 interest rates on mortgages that have soared higher than before the pandemic — start to rise. expire.
The environment may be the wake-up call many Americans need, she said.
“You need to have an emergency savings account whether you’re in a recession or not,” Orman said.
Americans live paycheck to paycheck
There’s never been a better time to put money aside for an emergency.
Yet setting aside a significant amount of money continues to be 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 soared, more than half of respondents – 54% – have reduced their savings in the past year, according to SecureSave’s November online survey of more than 1,000 American adults. .
About 67% of workers cannot afford an emergency expense of $400.
Orman co-founded SecureSave during the pandemic after 40 years of telling people they needed to have a savings account, she said.
“Our goal was very simple: see if we can change the savings rate in America for those who have never saved a dime before,” Orman said.
Many people often do not achieve this goal. A new survey from Bankrate.com reveals that most adults – 57% – are unable to afford a $1,000 emergency expense.
“People just can’t do this on their own,” Orman said. “The key is not seeing it on your paycheck.”
With SecureSave, workers can have savings — such as $25 — taken automatically from their paycheck, and can then also receive a matching $3 or $5 from their employer.
At the end of a year, people are often surprised by how much money they save, whether it’s $600 or $1,000, Orman said.
“They love it,” she noted. “And often they will increase their contribution to the salary.
“Once you start seeing how easy it is to save, the more you like saving,” Orman said.
By accumulating the cash you have, you may be able to avoid turning to credit cards when interest rates rise.
At this point, 25% of consumers surveyed by Bankrate.com said they would charge an unexpected expense of $1,000 or more and pay it back over time.
This strategy would be even more expensive now, with new credit card offers for even the most qualified people at interest rates of almost 20%, noted Mark Hamrick, principal economic analyst at Bankrate.com.
How saving can contribute to other financial goals
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Setting up emergency savings with an employer is just the first hurdle to financial well-being, according to Orman.
The next goal is to save eight to 12 months of expenses in a separate savings account, Orman said.
Even cash-strapped workers should contribute enough to their retirement accounts up to the employer’s limit, if there is one.
“You can’t pass up free money,” Orman said.
If workers reduce their financial stress, it can also help employers. Nearly 30% of workers say they spend one to two hours a day worrying about money, according to SecureSave.
It can also help prevent regret later, according to Bankrate.com’s Hamrick.
“We have historically found that among the things Americans regret most about their personal finances is not having saved for emergencies,” Hamrick said. “The other is the inability to save for retirement.”