Last year, I mentioned somewhere on the forum that most Americans don't save money. One would assume that they save a little money each month but apparently the problem is worse than that. According to an article I read, over 50% of Americans don't have more than $400 in savings. So in case of an emergency to get $400 they'd probably have to borrow the money. This could be because most people spend money they don't have and when they are paid, most of the money pays off the debts. Just curious what do you think is better, save some money, have an emergency fund for rainy days or pay off all your debts before you begin saving?
I would think it would be better to pay off the debt first with the intention of not getting back into debt. It is hard to save money if you have to pay it all out to pay debt. The interest amount of the debt can be very high and will continue to grow as long as the debt is owed.
This is a sad thread because I know that most of us have debts. We have a mortgage on our house for just a few months to go and the installments on our car is also just a few months more. But I cannot imagine myself saving money and missing the payments for my debts. The penalty for non-payment is terrible. I'm just glad that I can afford the installments for the house mortgage and the car loan otherwise I will be deep in debt just like before.
I really don't save right now because I have too much debt. If I were to save and pay the minimum on my debt then I would be getting tons of interest charges and I wouldn't be going anywhere. Right now I have to pay it down, but I do save a little for things like vet bills.
The circumstances would play a great role in your savings approach. I personally would like to save first and after I've saved enough, I will use a portion of my savings to pay pending debts. However, depending on the amount I owe, I may or may not pay in full. If it's possible to save and pay your debts at the same time, then use this approach. It's more efficient that way.
A lot of it really depends on the interest rates you're paying on the loans and the emotional baggage that is associated with debt / saving. From a purely monetary perspective, it helps to pay down your debt first if the interest you are earning on your savings is lower than the interest you are paying on your debt. But emotionally, many people don't feel comfortable having nothing in savings, least of all the idea of having no emergency fund. In that context, it makes sense to balance it up - save some, pay down some debt.
Bearing in mind that - not only can being in debt make a huge dent in the monthly budget - but more importantly - that the interest on debts is normally much, much higher than the interest earned on savings - its generally way better to pay off debts before starting to save - especially as by doing that - you'll be better off in the long term.
The best option is saving before paying a loan. This should be in an investment plan preferably high yield so that when savings are offset, something remains for a rainy day. However, this applies to lower interest loans as some loan facilities have high interest rates which might make an unnegotiated delay a risky undertaking.
Paying off debt IS saving. Saving tons, I might add. Hunker down and pay off your debts. Then begin saving for an emergency fund. That debt is what is preventing you from being able to save anything. Once the debt is gone, there will be more for saving.
I think a little should be saved for emergency while paying heavily for debts. Emergencies do happen and people resort to borrowing money again if there's nothing set aside for those circumstances. Siphoning off a little from your income for savings builds a saving habit that can help you handle your finances better once you are debt-free. It also builds your morale because you know that you're slowly securing yourself by setting some money aside. Once you've reached a comfortable level of emergency fund, then you can devote your income or salary to debt payment.
When it comes to saving money I always take a backseat. I am not able to save anything even if I wish to do so. I always end up using the money meant for saving. I think it is a good idea to start something like a recurring deposit where you are forced to invest a fixed amount every month. That way you can ensure that a particular portion of your income goes towards saving and it’s growing day after day. This may not available for a quick withdrawal but in case of an emergency you can arrange money from somewhere else and cover it up with your deposit later on. It is ideal for people like me I guess.
I think that it would be better to clear one's debts before starting saving. An alternative would be to pay debts and try and save the amount that remains. It would be absurd to save whereas your credit score is falling. One needs to be futuristic. It may reach a point and an emergency crops up and you use all your savings. What will you do when the creditors start sending you texts? On the other hand, if you pay your debts on time, you may even qualify for higher amounts next time and cater for your emergencies.
Sadly I am one of those that does not have much savings at the moment. I am working to pay off the rest of my debts and I can't see putting money into savings while accruing interest on some of the debts I still owe. It is different when there is no interest involved because you can make small payments on those bills and still reserve a little to put away in savings. I should have my finances taken care of soon and will then be able to tuck some money away into savings because right now I am working hard to not get anymore bills, so far so good!
My take on this is to pay off debts. I know that there are outstanding debts that cannot be paid off like house mortgage or car loan. My point is to pay off the dues because arrears will cause penalties and added interest. When all the dues have been paid and you still have something left then maybe that can go to your savings. It's a nice feeling to think that you have something in your bank or in your cabinet that can serve a good purpose when you need money. But then again, make the dues your priority.
It is sad because I don't even have emergency money saved now. I have too many depts to save anything. I do prefer paying of my depts before saving as I would stress out if depts kept increasing so I always try to get over those first. Once I get paid the first thing I do is pay off depts.
I think it is one of those hard situations because you want to pay off debts in order to save on penalties and interest charges, but if you have no savings, you risk having an emergency that will require you to go further into debt. It can be frustrating. I am learning to dump every single penny I have into paying off debt quickly so that I don't have to worry about it and I can start saving once again.
@Denis Hard, the rule of thumb is always SAVE first and then spend what is left after saving. Not the other way round. Contrary to popular belief, emergencies should be factored in your main budget. Always give it a fair share an consistently, with or without an emergency occurrence. What i would advice, the insurance industry came about to handle unforeseen occurrences. Use them. Evaluate an enroll to an insurance that fits your need.
I think you should always pay your debt first. If you save money instead of paying off debt, you will be losing money by paying interest on your debt. You will have to pay the debt anyhow, so why dillydally in paying off the debt. If you first clear your debt, you will be free from financial obligations.
I think both need to be done. As long as you are paying the debt slowly. It is going to reduce the burden. And if you are paying for the investment. Then that also reduces any future liabilities on you. So it all depends on how you are trying to pull off. So considering that part it'd be not that harder. And it can save you a lot of time in return. That's something you have to understand.
