Suze Orman speaks during the AOL BUILD Speaker Series at AOL Studios in New York City.
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An unexpected bill is never convenient.
But now there are even more reasons why an unforeseen event — like a car repair or medical expense — can put Americans on shaky financial ground.
Blame record high inflation, which has soared to 40-year highs and pushed up the prices of everything, including grocery store staples like butter, lettuce and dairy.
As 2023 approaches, recession risks also loom. The question is whether the decline would be mild or prolonged, while top tech employers such as Amazon and Google have already begun cutting jobs.
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Meanwhile, the federal government has hit the debt ceiling. Now it’s up to lawmakers to find a solution so the US government can keep paying its bills.
“We now have a financial pandemic, so to speak,” personal finance expert Suze Orman told CNBC.com.
“It’s … a more dangerous scenario now than it was during the pandemic,” Orman said of the current financial risks facing Americans.
Many Americans were able to set aside more money than usual during the Covid-19 pandemic, as government aid meant additional unemployment benefits for unemployed Americans 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 tripled in some cases and mortgage rates that have climbed higher than they were before the pandemic — come due.
The environment may be the wake-up call many Americans need, she said.
“You should have an emergency savings account whether you’re in a recession or not in a recession,” Orman said.
Americans live paycheck to paycheck
There’s never been a better time to have money set aside for emergencies.
Still, taking home a significant amount of money continues to be a challenge for many Americans.
A new survey finds that 74 percent 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 risen, more than half of respondents — 54 percent — have reduced their savings in the past year, SecureSave’s November online survey of more than 1,000 U.S. adults found.
About 67% of workers cannot afford to pay an emergency expense of $400.
Orman co-founded SecureSave during the pandemic after telling people for 40 years that they should have a savings account, she said.
“Our goal was very simple: Let’s see if we can change the savings rate in America for those who have never saved a penny before,” Orman said.
Many people often fail to achieve this goal. A new survey from Bankrate.com finds that most adults — 57 percent — can’t afford a $1,000 emergency expense.
“People just can’t do this on their own,” Orman said. “The key is not to see it in your paycheck.”
Through SecureSave, workers can have savings — like $25 — automatically taken out of their paycheck, and then can also get a $3 or $5 match from their employers.
At the end of a year, people are often surprised by the amounts they save, whether it’s $600 or $1,000, Orman said.
“They love it,” she noted. “And many times they will raise their contribution towards the salary.
“Once you start seeing how easy it is to save, the more you like saving,” Orman said.
By building up the cash you have on hand, you may be able to avoid resorting to credit cards as interest rates rise.
So far, 25 percent of consumers surveyed by Bankrate.com said they would charge an unexpected expense of $1,000 or more and pay it off over time.
That strategy would be even more expensive now, with new credit card offers for even the most qualified individuals at interest rates of nearly 20 percent, noted Mark Hamrick, senior economic analyst at Bankrate.com.
How savings can help other financial goals
Guido Miette | DigitalVision | Getty Images
Creating emergency savings with an employer is only the first hurdle to financial well-being, according to Orman.
The next goal is to save eight to 12 months’ worth of expenses in a separate savings account, Orman said.
Even cash-strapped workers must contribute enough to their retirement accounts up to an employer match, if any.
“You can’t pass up free money,” Orman said.
As workers reduce their financial stress, it can also help employers. Almost 30% of workers say they spend one to two hours a day worrying about money, according to SecureSave.
It can also help prevent regrets later, according to Bankrate.com’s Hamrick.
“Historically, we’ve found that among the things Americans regret most about their personal finances is failing to save for emergencies,” Hamrick said. “The other is not saving for retirement.”