Inflation, soaring rates — which are impacting everything from credit card debt to mortgages — and the resumption of student loans have made it difficult for many Americans not only to get by, but to save. And now, a new survey found that more than one-third of them have tapped into their emergency savings.
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According to Resume Now’s Financial Transparency Survey, these financial burdens also have translated into only 35% of people saying they could cover an unexpected expense of $800 and 65% saying they would run out of their emergency savings in six months at most.
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Inflation and the Resumption of Student Loans
“Rising prices, high inflation and the restart of student loans are making it harder for many Americans to get by,” said Bri Conn, investment advisor representative, Childfree Wealth, and co-host of the “Childfree Wealth” podcast. “While tapping into emergency savings is never enjoyable, it is a better option than going into debt. Taking on debt only adds to the bills you’re required to pay each month. Meanwhile, your emergency savings can be replenished.”
Conn added that if you’ve had to tap into your emergency fund this year, you’re not alone.
“It’s a vulnerable position to be in and it’s okay to admit that,” she said, adding that once you’ve got the initial emergency taken care of, aim to quickly replenish your emergency fund by working extra hours, taking on an extra job or cutting back discretionary spending, provided you haven’t already.
Credit Card Debt
Credit card debt is a significant concern for a substantial portion of the respondents.
This issue is particularly acute among men, with 42% citing it as a major stressor compared to 23% of women, according to the survey.
The need to build and maintain an emergency savings account is another major concern, reflecting a general sentiment of financial insecurity, said Dominic James Murray, CEO and independent financial advisor, Cameron James.
“The data indicates a pervasive worry about future financial well-being,” he said, noting that these concerns are not limited to specific demographic groups, as the survey suggests a widespread sense of financial unease across various sectors and educational backgrounds.
Alternatives to Using Emergency Savings
According to James, there are several better alternatives than tapping into your emergency savings.
He noted, however, that while each of these strategies offers a way to manage financial pressures without depleting emergency savings, their effectiveness lies in a holistic and balanced application.
“It’s about creating a multifaceted plan that addresses both immediate needs and long-term financial health,” he said. “The goal is not just to survive the current financial challenge but to emerge from it with a more robust and resilient financial foundation.”
Liquidate Non-Essential Assets
When faced with financial strain, one practical approach is to liquidate non-essential assets — a strategy involving selling items or investments that are not crucial to your long-term financial plans, said James.
Restructure Debt
Another strategy is to restructure existing debts.
“Refinancing or consolidating debts can lead to lower interest rates and reduced monthly payments, thereby easing cash flow constraints,” explained James.
He noted that this tactic is especially effective for high-interest debts such as credit card balances, where consolidation into a single, lower-interest loan can significantly reduce financial pressure.
Find Additional Income Streams
Additional income sources reduce dependency on a single employer. However, it’s essential to balance these additional commitments with your primary job and personal life to avoid burnout, James said.
Reassess Your Budget
Tightening the budget is a fundamental step in financial crisis management.
“This involves a thorough reassessment of one’s expenses, identifying areas where costs can be cut without significantly impacting quality of life. Common areas for savings include discretionary spending, such as dining out, subscriptions and luxury purchases,” he said.
Seek Help If You Need It
Government assistance programs and community resources can provide crucial support. These programs may offer financial aid, food assistance or subsidized services, providing a lifeline during tough economic times, James noted.
“It’s important to stay informed about the eligibility criteria and application processes for these programs to ensure timely and effective access to available support,” he added.
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This article originally appeared on GOBankingRates.com: One-Third of American Workers Have Tapped Into Their Emergency Savings — Economic Factors and 5 Better Alternatives
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