Suze Orman speaks during AOL’s BUILD Speaker Series at AOL Studios in New York.
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An unexpected bill is never convenient.
But there are now even more reasons why an unforeseen event – like a car repair or medical expenses – could leave Americans on an unstable financial footing.
Blame it on record inflation, which has risen to its highest level in 40 years and has pushed up the prices of everything, including groceries like butter, salad and dairy.
There are also risks of recession on the way to 2023. The question is whether a downturn would be mild or prolonged, while top tech employers like Amazon and Google have already started shedding jobs.
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In the meantime, the federal government has reached the debt ceiling. Now it’s up to lawmakers to find a solution so the US government can continue paying its bills.
“We’re sort of in a financial pandemic right now,” Suze Orman, a personal finance expert, told CNBC.com.
“It’s a … more dangerous scenario now than it was during the pandemic,” Orman said of the current financial risks Americans face.
Many Americans have been able to set aside more money than usual during the Covid-19 pandemic, as federal aid meant extra unemployment benefits for unemployed Americans for longer, while millions of individuals and families received stimulus checks.
Those federal funds are dwindling now, Orman said, as bills — including rents that have tripled in some cases and mortgage rates that have risen higher than before the pandemic — come due.
The environment could 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 emergency cash aside.
Still, putting away a significant amount of money remains a challenge for many Americans.
A new survey found that 74% of Americans are now living paycheck to paycheck, according to SecureSave, a financial technology company that aims to help workers set aside emergency savings through their employers.
As inflation has skyrocketed, more than half of respondents — 54% — reduced their savings over the past year, according to SecureSave’s November online survey of more than 1,000 US adults.
About 67% of workers cannot afford to pay $400 for an emergency.
One of the things Americans regret most about their personal finances is not saving for emergencies.
Senior Economic Analyst at Bankrate.com
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 saving rate in America for those who have never saved a dime before,” Orman said.
Many people often miss this goal. A new Bankrate.com survey found that most adults — 57% — can’t afford a $1,000 emergency expense.
“People just can’t do this on their own,” Orman said. “The key is not seeing it in your paycheck.”
Through SecureSave, employees can make savings – such as B. $25 – automatically deducted from their paycheck and can then also receive the equivalent of $3 or $5 from their employers.
At the end of the year, people are often surprised by the amount of money they save, whether it’s $600 or $1,000, Orman said.
“They love it,” she remarked. “And often they increase their paycheck contribution.
“Once you start seeing how easy it is to save, the more you love to save,” Orman said.
By building up your existing cash, you may be able to avoid resorting to credit cards when interest rates rise.
To this point, 25% of consumers surveyed by Bankrate.com said they would demand an unexpected expense of $1,000 or more and recoup it over time.
That strategy would be even more expensive now, with new credit card offerings for even the most qualified individuals at interest rates approaching 20%, noted Mark Hamrick, senior economic analyst at Bankrate.com.
How savings can help other financial goals
Guido Mieth | Digital Vision | Getty Images
According to Orman, setting up emergency savings with an employer is only the first hurdle on the road to financial well-being.
The next goal is to put eight to 12 months of expenses into a separate savings account, Orman said.
Even cash-strapped workers should contribute enough to their retirement accounts, up to an employer’s contribution, if any.
“You can’t do without free money,” Orman said.
When employees reduce their financial stress, it can also help employers. According to SecureSave, nearly 30% of workers say they spend an hour or two a day worrying about money.
It can also help prevent later regrets, according to Bankrate.com’s Hamrick.
“We’ve found in the past that one of the failures of Americans is to save for emergencies,” Hamrick said. “The other is failure to save for retirement.”