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Wednesday, Mar. 29, 2017

Save Now or Pay Later

Posted Tuesday, January 24, 2017, at 9:02 AM

Did you know paying yourself first can save you financial distress later? Financial advisors recommend saving at least 10% of your take home pay regularly. When an emergency or unexpected expense arises, you can avoid incurring debt by using the funds saved. Saving now for emergencies or other financial goals can save you interest charges and financial fees later.

Besides saving for emergencies or other unexpected expenses, saving for a particular financial goal such as a downpayment for a car or home, will lessen your loan amount and your interest/finance charge debt. Researchers have found that consumers who practice good financial management techniques are happier and have more self-confidence.

One of the largest debt loads for many Americans is the cost of education. Saving in advance for college or other post-secondary education/training costs can greatly reduce future debt. Two special college savings venues to consider are 529 plans and Education Savings Bonds.

It's never too early to think about retirement. If your employer provides matching funds for retirement, take advantage of the extra money your employer is providing in addition to your salary and other benefits. For those who cannot take advantage of the full match at first, save the minimum and increase as your income increases. The earlier and longer you contribute to a retirement plan, the greater your retirement income will be in the future. Contribute to a tax deferred Individual Retirement Account if you don't have a 401k.

An individual and I were discussing retirement plans and she shared that she couldn't afford to participate in her employer's 401k matching retirement plan when she began employment. As soon as she could manage it, she started with a 1% contribution to her 401k which her employer matched. When she saw her retirement savings growing, she sacrificed and increased her contribution over time until she was at the highest amount the employer would match. She stated, "I regret not starting contributing to my 401k earlier because I did not access that extra money my employer would have provided. While I am glad I did eventually build up my retirement account and receive the benefit of matching funds from my employer, I would have had so much more if I had started earlier."

Our needs should always come first in our financial plan/budget and savings plan, but we shouldn't forget our hopes and dreams. Saving for that dream vacation or new furniture will make it even more special when we have the funds for it. A friend shared with me recently, "We could have never afforded our vacation if I had not estimated the expenses and saved every month. We had fun because we had enough money to pay for our vacation without having to use a credit card or take out a loan."

Savings helps us with our credit rating. The lower our debt means we not only pay less interest/finance charges, but we have the opportunity to earn a better credit score. A good credit score also involves other factors such as making payments on time, number of open credit accounts, monthly payment amounts, balances, monthly debt to income ratio, etc. The higher our credit score, the better our credit rating which helps us in getting lower interest rates, better insurance rates, and even a job.

On a tight budget? Then save a lesser amount and build up to 10% over time. Once you build your emergency fund with at least 2 to 6 months of expenses saved, set other savings goals. Pay yourself first by signing up for payroll deduction savings. Saving now can prevent paying high interest rates and financial fees later.

To encourage saving, you are invited to participate in the Mississippi County Saves campaign which is a part of the America Saves campaign beginning in January and running through America Saves Week, February 27-March 4, 2017. It is designed to encourage people to save and invest. Learn about tools and resources that will make the most of your financial resources. Visit www.uaex.edu/money to learn more about recommended savings strategies and to take the 2017 America Saves pledge. Like the Mississippi County Extension FCS facebook page (which will have regular postings promoting Mississippi County Saves), https://www.facebook.com/UAEXMISSCOFCS/

The University of Arkansas System Division of Agriculture is an equal opportunity/equal access/affirmative action institution.

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Living Well with Extension Education
By Dr. Pamela Pruett
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Dr. Pamela Pruett, Family and Consumer Sciences Agent in Mississippi County, is an educator with 30 years plus experience. She has a doctorate in Educational Leadership from Union University, Jackson, Tenn., and a Master's in Counseling from Liberty University, Lynchburg, Vir.
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