In a recent study, over a thousand people were asked about specific savings strategies or goals. The results came in with with 54% claiming they didn’t have any set savings strategies and 61.5% saying they aren’t saving for retirement. One critical step in creating a savings plan is to make a budget and stick to it. The word Budget often has negative connotations, like a diet or chores but the reality is that not knowing how to build a budget and properly manage your money will prevent you from properly saving. And a lack of savings can lead to some significant negative outcomes in your life.
It is common sense to understand that without a savings plan it will lead to a lack of savings for emergencies. Emergencies happen every day and you can never predict when one might happen to you. People who have built up an adequate Emergency Fund will be much better off to handle life’s unexpected twists and turns. For those who are faced with the unexpected and don’t have savings to rely on, credit cards often become the solution, which then leads to credit card debt. Aside from being charged interest on your credit card debt, it becomes another bill to pay. Those who don’t budget their money and properly manage their expenses often make just the minimum payment in their credit card, resulting in accumulating more debt if they continue to use their card. In New Mexico, we have a significant problem with credit card debt, as we rank 48th in the nation in Credit Card Debt Burden. The primary reason being that we fail to exercise good habits in budgeting and personal savings.
The next domino to fall in this pattern is the damage that credit card debt can do to our overall credit scores. This debt is included on credit reports, which give details of someone’s credit history and the current status of any loans or debts they owe money on. Having high balances on your credit cards and making minimum payments can look bad on your report and lower your overall credit score. A low credit score can result in you getting declined for future loans, relying on alternative loans such as title loans or payday loans, and paying significantly higher interest rates. Even landlords, employers and insurance companies may look at your scores, creating more negative impacts in your life.
Finally, if someone is not saving, then they are not planning for retirement either. Many Americans don’t have enough saved for retirement. One quarter of workers claimed to have less than $1,000 in savings combined with their spouses. Half of those surveyed said they had less than $25,000. Saving for retirement is very important in order to have enough money for essential needs later on. No one wants to have to work in their old age, and there is no guarantee that Social Security, Medicare, and other programs meant to support senior citizens will be there forever. As a society, our lack of retirement savings is becoming a significant issue.
Budgeting is really quite simple, but as you can see it is extremely important. Not being properly prepared for your future can lead to several bad outcomes. Get control of your financial future and start a budget today!
Karla Gonzales, Hector Araiza, Luis Ruvalcaba