Will it be easier to save money in 2023?

Will it be easier to save money in 2023?

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It could, if this happens.

Key points

  • Inflation is making it harder for Americans to build their savings.
  • If inflation slows next year, you may be able to increase your cash reserves.

If you’re having a hard time putting money into your savings account these days, you’re in good company. In fact, many people are dipping into their savings to cover rising costs for groceries, utilities, rent, and more.

Why has everything become so expensive? We can thank inflation for that.

Last year, Americans received a generous round of stimulus checks and parents were eligible for a beefed-up child tax credit, half of which they received in monthly installments. But while that was happening, supply chains were beginning to slow down due to the effects of the pandemic. That created a huge disconnect between supply and demand, and until that gap is closed, inflation could continue to run rampant.

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But there’s reason to believe that inflation levels will cool off in 2023. So if you’re struggling to accumulate savings now, things may actually get easier next year.

Why might inflation slow down?

For inflation to cool off, consumers need a reason to stop spending. And the Federal Reserve is giving them one.

The Federal Reserve has been implementing interest rate hikes that increasingly drive up the cost of borrowing. And the Fed isn’t done: It plans to keep moving forward with rate hikes until inflation readings look more favourable.

What this means is that there is a good chance that next year inflation will have moderated as a result of reduced consumer spending. And if you’re not forced to pay as much for essential expenses, you should free up money to add to your savings.

Of course, the hope in all of this is that consumers don’t cut spending to an extreme degree because of higher borrowing costs. If that were to happen, it could trigger a recession, which could lead to widespread unemployment and other unfavorable economic consequences.

But despite that risk, the Fed believes that interest rate hikes are really the only way to break the current cycle. So we’ll have to wait for consumer spending to drop enough for the cost of living to come down again.

Other ways to save money

If inflation settles in 2023, it could do wonders for your savings. But sitting back and waiting for that to happen may not be your only option.

One thing you should know is that today’s job market is very strong, so you may have the option to find a better paying job right now. Or, you can find a second job and use the earnings to add to your savings.

Another option is to carefully examine your spending habits and think of ways to reduce them. This doesn’t mean you have to deny yourself all the luxuries that make life enjoyable. But you may find that there are bills that you can get rid of without suffering. If, for example, you order takeout every week because you don’t feel like cooking, you may find that inviting friends over to cook together makes meal prep more fun, and at a fraction of the cost.

All in all, there’s reason to expect inflation levels to decline in 2023. But it’s also a good idea to take savings into your own hands, especially if you think your cash reserves could use a boost.

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