1 in 4 Americans Are Tapping Their Savings to Cope With Higher Living Costs

In 2022, inflation levels were sky-high, and a lot of people had a hard time coping with elevated bills. Thankfully, though, inflation has cooled quite a bit this year.

In November, for example, the Consumer Price Index (CPI) measured annual inflation at 3.1%. By contrast, in June 2022, inflation was measured at 9.1%.

While it's clear that living costs aren't quite as inflated these days as they were a year or so ago, many people are still having a difficult time making ends meet. Data from the Financial Health Network finds that Americans are using different strategies to cope with continuing price increases. And 26% of Americans are hitting up their savings accounts for everyday expenses due to lingering inflation. That, however, is a strategy that might sorely backfire on you.

You don't want to whittle your savings down

If your paycheck isn't large enough to cover your expenses, then you might assume there's nothing wrong with dipping into your personal cash reserves to cover the difference. But if you continuously raid your emergency savings to pay your regular bills, you might end up in a situation where you don't have ample cash reserves for a major unplanned expense, like a home repair.

Plus, you might have non-emergency savings you're tapping to keep up with higher costs that you've earmarked for a big goal, like buying a home. If you raid your savings month after month to pay the grocery bill, you'll only make it harder to bring your goal to life.

A better way to cope with inflation

It's one thing to occasionally dip into your savings to cover regular expenses that are higher than usual. But it's another thing to be taking a withdrawal from savings every month to manage your costs. If that's the situation you're in, it may be time to rethink your spending.

Start with your larger expenses. Is there a way to reduce them? Maybe there isn't. But if your lease is coming to an end and there's a less expensive apartment building a few blocks over that leaves with you an equally comfortable living space for $200 less per month, then it could be worth it to make a move -- even if you have to shell out $500 to pay for a service to haul your stuff to your new abode.

If you can't slash a larger expense, look at your smaller bills. Perhaps you're withdrawing $120 a month from savings to make up for what your paycheck can't cover. Can you cut back your spending by $120 a month by canceling a streaming service and ordering one fewer takeout meals per week? That may be possible.

Otherwise, consider taking on a side hustle on top of your main job to boost your income and make it possible to cover your monthly expenses without using your savings. Certain gigs, like driving for a ride-hailing service, are very flexible. You may find that working only a few hours a week allows you to cover your expenses without having to tap your savings each month.

Persistent inflation may be with us for quite some time. And you definitely don't want to keep raiding your savings. If you do, you'll risk whittling your balance down to nothing, or leaving yourself short in the event of an unplanned expense. So instead of continuing to tap your banked cash, figure out if adjusting your spending is doable. And if not, a boost to your income may be a good solution that doesn't wreak too much havoc on your free time.