Americans Will Run Out Of Money By January 1st

What's up, guys? It's Graham here. So, it's official—80% of Americans have already run out of money, and it's about to get a lot worse over these next few months. That's right, a new survey just found that despite the personal savings rate hovering near a 10-year low, consumers are still spending the majority of their discretionary income. So much, in fact, that some estimates claim they'll have nothing left by the end of the year.

That's why we should really break down exactly what's going on—what this means for all of you watching, the impact this is about to have throughout the entire economy, and the steps that you could begin taking to save more money immediately. Because I have to say, time is running out very quickly for a lot of people. Although, before we go into that, as usual, if you guys appreciate these videos or you find them helpful, it means the world to me if you hit the like button or subscribe. Doing that helps out the entire channel tremendously. And as a thank you for doing that, here's a picture of a baby squirrel, so thank you guys so much.

Also, a big thank you to CookUnity for sponsoring today's video, but more on that later.

Alright, so first of all, before we go into the gruesome detail, it should be no surprise that almost everything costs substantially more today than it did prior to 2020. And if you're ready for a shocker, I hope you're sitting down, because these are the things that have gone up the most in price. Let's start with a popular one: new and used cars. Like we've all heard, the average car payment had a record high of $733 a month, but in terms of how this compares, just a few years ago, new cars are costing you 30% more, and a used car is almost 50% more.

Second, we then have housing. When it comes to rent, prices are 26% higher than they were back in 2019. Purchase prices are also up by 28%, but that's if you pay cash. If you get a loan, higher interest rates actually make your payment 60% more expensive.

Third, we all need to eat, so we also have to factor in food. According to the World Economic Forum, it's almost 30% more expensive to eat a meal today than it was in 2019. This also includes a variety of food shortages, like the cost of eggs reaching a record high, margarine costing 38.3% more, and Walmart chicken prices also rising by the same amount.

Now, fourth, what's life without a little vacation? If you like to travel, well, that'll cost you a lot more. Both gasoline and airline fares are both up 40%, hotel prices are up 15%, and should you need to rent a car at your final destination, that'll cost you 50% more.

The fifth? Don't you worry, because even though expenses are going up, there is some good news: wages are also going up, kind of. Among the lowest 90th percentile of workers, wages increased 2.9% from 2019 through 2022. For most middle-class incomes, wages increased between 1.8% to 4%, and in the top 10% bracket, wages increased 4.9%. So technically, unless you're making 30% to 50% more money today than you were back then, most likely you're not making as much money as you think, which is partially because of number six.

We can't talk about rising prices without talking about rising interest rates. From January of 2020 through today, the federal funds rate has increased from 1.5% to 5.25%, with most of that coming in the last 18 months. As a result, financing anything has become significantly more expensive. And when people have less money to spend, they're more likely to finance something—which means they have even less money available, which repeats the cycle over again.

Finally, seventh, we have money printing. This is not meant to be a statistical analysis by any means, and it's more so me trying to contextualize a very complex next topic. But when you look at the U.S. money supply, we saw a 40% increase within a matter of three years. And with that in mind, it's really no surprise how almost every single category went up by almost the exact same amount in that exact same time frame.

So now that you have some of the background out of the way, let's talk about another topic that's gaining a lot of popularity, and that would be saving money. Look, it's not like most people are the real-life versions of Extreme Cheapskates trying to save a few pennies a month, but the average savings rate is going down by a lot and currently stands at just 3.9%. And that's what brings me to this claim that Americans are about to run out of money.

See, all of this begins with the term "pandemic savings." This refers to all of the excess savings that Americans were able to accumulate from staying home, receiving unemployment, getting stimulus checks, and otherwise seeing a surplus of money being deposited into their accounts without a means to spend it. Then, a few months later in 2021, SPG Global predicted the trillions of dollars of excess savings would be unleashed once the pandemic was over—and yep, it sure has, with more than a trillion dollars just being spent online in 2022.

The problem, however, was that a lot of the spending didn't stop; it just continued. According to the Wall Street Journal, Americans spent more on groceries, recreational goods, and vehicles, and on services such as housing, dining out, and insurance. They also went on to clarify that as far as recreational activities are concerned, Americans opened their wallets more for travel, as well as the Barbie film, Beyoncé's Renaissance tour, and Taylor Swift's Eras tour, where someone paid almost ninety thousand dollars for a ticket.

Why would you do that anyways? You could see, since the pandemic, spending across almost all categories has increased between 20% to 50%, often beyond the rate of inflation, meaning Americans are running out of money. And that causes people to wonder how long could this last, and how cool is it that Taylor Swift just made Travis Kelsey famous? Okay, jokes aside!

In terms of when Americans will run out of money, it really just depends on who you ask. Like Bank of America went on record to say that in September, median household savings and checking balances were up by more than 40% relative to 2019 for low, medium, and high-income households. Chase Bank also tends to agree with this, pointing out that across their customers, the median bank balance across all income groups still remained between 10% and 15% higher at the end of the first quarter of 2023 than at the end of 2019.

However, separate research from the San Francisco Fed suggested that Americans have burned through more than 90% of the excess savings they amassed in 2020 and 2021. What little remains, the economists estimate, is likely to be gone by the end of September, which, I'm sure you've noticed, has already passed. Other Federal Reserve members had also previously predicted that excess savings would be running out earlier this year, which again proved to be inaccurate. Although the real answer tends to be that it's just impossible to tell.

For instance, Goldman Sachs believes that there's very little reason to think that households will ever get through their excess savings completely. But by and large, regardless of the study, these American finances are seemingly only getting worse.

And in terms of where things are falling apart and how you could save some extra money, here's what I think. Although, before we go into that, look, I know we often talk about money here on the channel, and I don't want to take away from that, but at the core, your health is paramount. I know for myself, there have been plenty of times where I've just been too busy to eat as healthy as I should have, or I just grab random snacks throughout the day to get myself by.

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Alright, so in terms of why American finances are only getting worse, a recent survey broke it down into five main categories, with the first being a rising cost of living. In fact, 84% said that they felt their expenses continued growing larger by the month, with half of those believing that inflation will continue. A smaller portion cited rising transportation and housing prices, eating into their budget. But by and large, prices are still expected to rise over the next 12 months.

Number two, we have rising debt. According to the survey, twice as many participants said that their debt had increased versus decreased. In addition to that, 90% said they had no intention of moving or renting a new home, with the primary reason being that they couldn't afford it. We've also seen that the percentage of credit card holders carrying debt has increased to 46%, up from 39% a year ago, and auto loan delinquencies are at their highest level since 2006.

Third, it's also worth considering that pandemic relief has ended. When it comes to this, more than 55% of Americans said that they received some form of stimulus throughout the pandemic, and it mattered to them, with more than a third saying it was very important to their financial well-being. But now, with practically all measures having ended, including student loan forbearance, the burden now once again falls back on the consumer.

Now fourth, essential spending is becoming more common. This means that people are starting to find creative ways to scale back. In fact, it's so prevalent that 92% of adults have reduced their spending in the last six months, and 76% plan to scale back on their holiday spending throughout the rest of the year. In addition to that, the most common category seeing the biggest pullbacks are in apparent clothing, restaurants, bars, and entertainment outside of the house, with groceries, recreational travel, and electronics coming in not too far below.

And finally, fifth, the income bracket being hit the hardest from all of this are those making under $50,000 a year. The reality is, this income range has the lowest disposable income; they are being affected the most by rising prices. They already have the least amount of money to spend, and as a result, they're often the ones accumulating the highest amount of debt in the process.

So now that you know exactly what's happening and where it's all going, here are the things that you could begin doing immediately to prepare, and that way, you'll be in the best position possible to try to get yourself through.

To start, I mentioned this before, but one of the best insights really comes from the Consumer Expenditure Survey, which compiles exactly where the average American is spending their money, and wow, is it a lot! On the surface, the average household brought in $94,000 a year before taxes. But with so many of those earners living paycheck to paycheck, everything you need to know is found right here in their budgets.

So here's precisely where their money is going and what you're able to do about it. As you're able to see, the largest expense here goes to housing, with the average person spending 33% of their budget, or $24,000 a year. Now, since this is the largest expense by far, it makes sense that we place the biggest importance here.

In terms of the ways that you're able to save from this, first, I recommend renting out any unused spaces, such as storage, a garage, or an unused bedroom. That you could rent out to a roommate. The benefit to you is that you'll be able to have someone else help out with your overhead. You'll be able to provide an affordable place for someone else that's otherwise not being used, and all that money is extra that you could save and invest.

Alternatively, if you rent, you could also look into renegotiating your lease, moving to a slightly less expensive area, or downsizing to save the difference. Rents are also currently falling across many cities, so use this to your advantage.

The second largest expense comes from transportation, at $12,295 a year. Now, a lot of this is the result of increased fuel costs, but objectively spending more than a thousand dollars a month to get around is probably a lot higher than it needs to be. Plus, to make matters worse, the average interest rate for a brand new car is now between 6% to 9%.

So here's my recommendation: unless you need a nice car for professional use, go and get yourself the most reliable, affordable, good-on-gas car you can get, and then drive it until it doesn't run anymore. I know it's probably not going to be the coolest car, but a 2008 to 2012 Toyota Camry is probably going to cost you less than $12,000. It's incredibly reliable, it's good on gas, it's cheap with insurance, parts are readily available, and they're not going to lose that much value.

For example, a new Toyota Camry could cost you $33,000, but buy one that's eight years old, and all of a sudden, it's 60% cheaper. Or buy a car that's 11 years old, and it's 70% cheaper. From this, as you could see, the difference between a 2015 and a 2012 is just $3,000, and that means the car is only losing $83 a month in depreciation compared to the new car, which loses over $200 a month.

On top of that, when you consider that the average American buys a brand new car every six years, that depreciation quickly begins adding up and quickly turns into a giant money pit.

After that, we have yet another necessity, and that would be food, at 12.8% of the average budget or $9,300 a year. Here, according to this study, more than half of that, at 56%, is attributed to food away from home. We're basically eating out at restaurants or buying snacks throughout the day.

Now, I'm not going to sit here behind a screen and yell at you to stop spending money at restaurants or check out CookUnity instead of picking up fast food on the way home, even though both of those would be easy ways to cut back on spending. But instead, I'll take a more reasonable approach.

I think if you're dining out, going to restaurants, or getting food to go on the way home, just avoid doing that out of laziness. Like if you're buying a $20 lunch at work every day because you don't feel like packing food from home, stop doing that immediately—you're wasting money!

However, if your idea of a good time is maybe going and networking every now and then or having food with friends at dinner once a week, if you can afford it, then by all means, do it occasionally. By doing this, even if you're able to save just $100 a month by cutting back, all of that is extra money that you could save and invest to put yourself ahead financially.

And finally, the fourth largest expenditure would be personal insurance and pensions, at $8,700 a year. But since Social Security and pensions are usually a fixed cost depending on where you work, overall personal insurance is something that you could shop around for. I think you would be completely surprised by how much money you could potentially save just by shopping around, calling a few companies, and seeing just what else is out there.

After all, I was able to save 15% off my car insurance by smashing the like button and subscribing if you haven't done that already. Okay, no, but in all seriousness, I did this recently, and I was able to save $130 a month by shopping around some new plans, and I was able to get more coverage in the process for less money. Without trying to sound too confident here, I have a strong feeling that if you just spent one hour shopping around for personal insurance—home insurance, car insurance, and renters insurance—there should be almost no reason that you can't save between $20 and $50 a month with minimal effort.

Beyond that though, there are plenty of other additional expenses that just continually add up that you could easily cut back on. For example, $583 are spent on alcohol, $1,945 on clothing, $371 spent on tobacco, and almost $3,500 spent on entertainment. So obviously, all of these are things that you could consider cutting back on, but by and large, you are going to get the highest ROI focusing on the biggest ticket items first, which tend to be housing, transportation, and food.

So in terms of my own thoughts, yes, Americans are running out of money, but in terms of a clickbait standpoint, this really only applies to the excess savings that was accumulated during the pandemic. My best guess is that people will unconsciously spend whatever they have left over and then revert back to a bare-bones approach when they absolutely have to. Unfortunately, this just seems to be human nature, and it's likely that our economy will begin to slow down as a result.

But let me know what you guys think of all of this, how you're handling increased costs, and your overall thoughts. I'd love to hear them, and I will do my best to respond to as many comments as I can. So with that said, you guys, thank you so much for watching. As always, feel free to add me on Snapchat and Instagram, and don't forget that you can get some free stocks, all the way up to a few thousand dollars, when you make a deposit using a paid affiliate link down below in the description. Let me know what stocks you get. Thank you so much, and until next time!