Americans feel saving and paying off debt is a high priority however, many are not saving as much as they would like. According to a recent survey by Discover Personal Loans, 40% of Americans have reduced the amount they are saving and 38% were saving to pay off debt. Here are several reasons why we are struggling to save and pay off debt.
Tapping Into Savings to Cover Unplanned Expenses
When confronted with an unplanned expense, 71% of survey respondents stated they would use their savings to pay for it. Savings by their very nature are funds set aside for goals such as a down payment for a new car or home. Not having funds to cover unplanned expenses can put other savings goals at risk and make it difficult to replenish lost savings.
Using Savings to Cover Monthly Expenses
Tapping into savings to cover day to day expenses is a red flag that you are spending beyond your means and if left unchecked can lead to serious financial problems. 60% of survey respondents stated that they have used savings to pay for monthly expenses in the past five years.
Lack of Emergency Fund
According to the study commissioned by Discover Personal Loans, one-fifth of respondents stated they wished that they had done a better job planning to have emergency funds available. An emergency fund is an important tool that can provide a source of funds to cover your expenses in case of job loss or extended illness. Not having an adequate emergency fund can make it very difficult to build your savings and avoid taking on unnecessary debt.
One danger with not having an adequate emergency fund is the temptation to use a credit card to pay for unforeseen expenses. Using credit cards to pay for day to day or emergency expenses is never a good idea unless you pay balances off before you accrue fees and you earn reward points that cover any interest charges.
Instead of using a high interest credit card to cover unexpected bills, a popular option is to take out a lower interest personal loan. A personal loan can provide key advantages when you are trying to take control of your finances and achieve your financial goals.
Failure to Plan for Retirement
One quarter of those surveyed wished they had planned better for retirement. This is perhaps no surprise since the majority of respondents admitted to not having an adequate emergency fund and using savings to pay for monthly expenses. Ideally, it is best to enroll in an employer sponsored retirement savings plan on your first day on the job or start investing in an IRA and increase your contribution amount as your income increases.