of Americans have built up their personal savings over the past two years.
For all the turmoil that we've experienced during the pandemic, there have been some silver linings. In one way or another, it caused many of us to stop and rethink different aspects of our lives — including our finances. In fact, many of us adopted better money habits: 60 percent of Americans say they have been able to build up their personal savings over the past two years, according to the 2022 Northwestern Mutual Planning and Progress study.
Unfortunately, the trend seems to be reversing. In 2021, people had an average of $73,000 in their personal savings, compared with $62,000 this year. And fewer people say they adopted better financial habits in 2022 than in 2021 (73 percent versus 95 percent, respectively).
“Some regression from last year isn’t particularly surprising given the heightened levels of uncertainty people felt earlier in the pandemic,” says Christian Mitchell, executive vice president and chief customer officer at Northwestern Mutual. Mitchell adds that if you’ve let some of your good money habits slide, this is a great time to step back and make sure you’re focused on the financial priorities that are most important to you.
Here are five tips that Mitchell recommends to help you stay in good financial health.
Tips to build better money habits
Review your cash flow regularly
One thing the pandemic forced on nearly all of us was a reduction in spending. Expenses like going out to eat, buying coffee every morning or commuting every day to the office stopped overnight. Less cash spent on going out meant there was more to save, but now that the world has reopened, those expenses have likely started to creep back in.
Of course, it’s not that you shouldn’t spend money on these things. But it’s good practice to regularly sit down and go through your monthly expenses to find spending creep on things that aren’t important to you. For instance, if you have a busy family, to save time on cooking it can be easy to rely on take-out, which can add up to hundreds of dollars a week. But with a little planning, you can eat healthier food and free up money — maybe even for that family vacation you had to put off. Keeping unimportant expenses to a minimum frees up cash flow for the things that matter most to you.
Manage your debt
In 2021, 34 percent of us said we were adopting better money habits around debt, but only 22 percent said the same in 2022. When managed well, debt can be a powerful financial tool. But with interest rates rising, it’s a good idea to take stock of your debt to ensure you aren’t paying more for it than you have to.
Good debt, like a fixed rate mortgage on a home, may actually be working in your favor — particularly if you locked in a low rate before interest rates rose. But if you have a variable rate on a home loan or a line of credit, you may want to consider other options as rates rise, like switching to a fixed-rate loan or more aggressively paying down this debt.
If you’re sitting on bad debt, like balances on credit cards, it may be worth diverting some of the money you free up while reviewing your cash flow to lowering your balances. Here are a few different debt pay-down strategies that you may want to consider.
Level up your savings over time
A good general rule is to save 20 percent of what you earn. If you’re currently saving more like 5 percent, it can seem daunting to find money for the extra 15 percent. The reality is that very few people get to 20 percent overnight; the trick is to level up a bit at a time.
One great way to do this is to up your savings any time you get a raise. With wages on the rise, perhaps there’s a pay bump in your future. Say you get a 4 percent bump in pay; try saving 2 percent and letting the other 2 percent go toward your monthly budget.
Automate your savings. Setting up automated transfers as soon as your paycheck hits your checking account means you save before you even realize the money’s gone — which makes it that much easier to save over time.
That’s right. During the pandemic, many of us bought something that made us happy to counter all the things that were not. And that was OK, because we were saving money on the things we stopped. This is a pandemic habit we should absolutely keep. Think of it this way: Making good financial decisions should free you to spend money, not prevent you from doing so. The key here is to be deliberate about what you spend on (see tip No. 1).
Don’t be afraid to ask for help
A Peloton bike may look sleek, but what it really brings to the table over a regular stationary bike is a partner and a community to help you stay on track with your workout. That can make an enormous difference in helping you reach your goals.
Working with a financial advisor is no different. He or she can help you identify your goals, build a plan that shows you how to get there and encourage you along the way.
“Our advisors work with clients every day to help them see how they’re making regular progress on their goals,” Mitchell says. “Working with advisors helps clients feel more confident about their ability to achieve their goals.”