If you want to see your money grow, be on guard about a few terms and how you perceive the concept. No two people are the same and if you have never saved in the past, you might as well find out why you couldn’t do so. If you have only saved and never invested, which deprived you of the opportunity to allow your money to grow, you should ascertain the reason for that too.
Let’s look at what makes sense, whether to pay off your debt (short-term credit or long-term loans), invest, or save for a rainy day.
Savings Versus Investing Versus Paying Off Debt
Saving – An individual is said to save when from his payroll (if he has a job) or profit (if he has his own business) he keeps aside some amount of money for a rainy day. He just keeps the money and forgets it is there because you cannot use the money unless deemed necessary. Also, if saving for a short-term, you could be saving for a holiday or buying that expensive headset you have always admired at the electronic appliance store! Over the years, the amount you have been saving accumulates to assume a commendable figure. You could save your money in a bank account or any non banking financial institution.
Investing – Investing, on the other hand, is placing your money in any investment vehicle that bring you a return. When you invest, you expect the returns will be more than the actual amount or the principal amount that you invested. In other words, the value of your investment grows. Such investment vehicles include real estate, stocks, currency pairs, shares in funds, coins, and so on.
Paying off debt – Paying off debts refers to paying back what you took as credit (with or without collateral) to meet a financial obligation. It could be paying off short term credit or long-term loan, a mortgage, auto loan, or a personal loan.
Paying Off Debts First Makes Sense
When you use credit, you must repay the loan within a predetermined time period. Sometimes, paying off debt strains your wallet, as every month a considerable amount of cash is siphoned off. And under such circumstances, you are left with little money to save. But that should not trouble you because you know you were using someone else’s money and you don’t have the right to keep it with you. So, first pay off your debt (consolidate the debt if required) before embarking upon a journey to save for a holiday, an expensive solitaire, an expensive gift for your loved one or buying your first car.
Is Saving While Having Debt the Right Choice?
It definitely depends on your cash inflow. If you find that despite paying off your debt installments, you can manage to keep aside some money as savings, you could go ahead with that. Experts are of the opinion that saving despite having debts is fine as long as you are in the following scenario –
- You are being able to stay regular with your debt payments especially mortgages since the monthly amount you are required to pay towards mortgage is a considerable amount.
- You usually don’t fall behind on payments such as credit card bills.
- Saving is feasible and makes sense if the amount you are paying as interest is manageable as compared to the principal amount of your loan
How to Curtail the Habit of Using Credit?
Whenever you use credit, you make use of the lender’s money. So, you cannot keep it for long. Adopt the following measures to curb expenses –
- Avoid using plastic cards as much as possible
- Work out a budget plan
- Spend according to your cash inflow. Outflow should be less than cash inflow
- Prioritize expenses