Should I Save or Invest?
People often think that it can be better to just manage your debt than to try and save, but that really isn’t the case. It comes down to some simple math; saving accounts will pay you between 1% to 2% interest on your balance, whereas most debts start at around 8%. That leaves you at least 6% worse off if you’re trying to save while still carrying debt.
We’re not talking about home loans here, so don’t stop paying your mortgage! But if you have credit card debts, store credits or personal loans, then it’s a good idea to clear them sooner rather than later. Of course, you should always maintain an emergency fund of a few thousand dollars just in case. Otherwise, I always advise it’s better to invest in clearing all your unsecured debts before implementing an investment plan.
If you owe debts, it’s a good idea to look at using the debt snowball method. It works like this:
The debt-snowball method is a debt-reduction strategy used when someone owes on more than one account. They pay off the accounts starting with the smallest balances first while paying the minimum payment on larger debts. Once the smallest debt is paid off, you proceed to the next larger debt. You continue on that way, proceeding to the largest ones last.[1]
So to recap:
Save a few thousand for an emergency
Debt snowball your debts
Start saving
TC