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July 1, 2016

Beating the Statistics. 3 Tips for Creating a Savings Plan


Having a savings account that can cover emergencies can reduce the reliance on credit cards.

In May 2016, The Federal Reserve System released its Report on the Economic Well-Being of U.S Households in 2015. A statistic came out of the report that alarmed many of us in the financial capability community. “46% of adults said that they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money.”

 

As if this statistic wasn’t distressing enough, two more statistics have followed right behind. The United States is currently on track to reach 1 trillion dollars in credit card balances in 2016. We have not seen numbers this high since July 2008, which was followed by the recession. We are also seeing an all-time high in auto lending. Auto loan debt has passed the trillion dollar mark.

There are many reasons that could be causing the spikes in debt and declivity in savings. As the cost of living increases, it has outpaced income growth, causing many Americans to have less money in savings and a high utilization rate of credit cards. We have seen a resurgence of subprime lending, which is allowing individuals with lower credit scores to obtain credit. Young adults are facing high student loan debt and relying on credit to cover necessities.

As a financial educator, I know there is no easy answer. There are steps that can be taken to avoid these traps.

1.  Have a spending plan. Tracking expenses is a great way to start a spending plan. Developing concrete knowledge of what your expenses are each month is imperative to establishing your plan.

2.  Create an Automatic Deposit. Have money directly withdrawn from your paycheck each pay period and deposited into a savings account. There is a greater likelihood that you won’t spend money if you don’t see the money. It is important to increase the amount of your automatic savings deposit each time you receive a boost in your wages.

3.  Make small changes. Start by saving $1 in a jar each day and then deposit it into a savings account at the end of the month. The following month, do the same, but with two dollars per day.

A savings account that can cover emergencies can reduce the reliance on credit cards. The concept of compound interest often confounds consumers. Unfortunately, compound interest is what often causes the debt to continue to grow, even when there have been no additional charges.

Financial education and credit counseling can be the key to getting out of a financial quandary. A third party expert, such as a credit counselor, can provide the education, guidance and support in order to help you prepare for a secure financial future or afford you an exit strategy, if you are in debt. The key is to ask for help. There is no shame in having a professional light the path to financial control. You can reach one of our Certified Credit Counselors at 1-800-992-4557 for assistance or click here to get started.

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Kim Cole is the Education Outreach Coordinator for Navicore Solutions. Kim provides financial education workshops and seminars to communities. Readers can submit general questions relating to personal finance, credit scoring, debt management, student loans, home finance or bankruptcy which may be highlighted in the next month’s edition. All identifying information will be kept anonymous.

Please send your questions via email to DearKim@navicoresolutions.org