Savings vs. Debts

Savings vs. Debts
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There have been a lot of debates in the financial community about what is more important: paying off debt or contributing to your savings fund. Tips and instructions on how to save money for retirement and pay debt are available, but sometimes it is actually hard doing them at the same time. So it will be a great dilemma if you stumble into some cash for you may be torn between paying off your debt or saving it. However, this article will help you to take a look at each of the options that are available to you.

The importance of having savings fund could not be emphasized enough. It is always a staple content in most financial sites and forums. Experts say that a person should have an emergency fund of at least three to six months of living expenses to serve as cushion for the unexpected, such as sudden sickness, job loss, et cetera. For some people, saving should be prioritized before debt payment to serve as protection from the unforeseen.

However, the opponents of the above premise suggest that paying off debt should be a priority. They argue that the interest earned by debts and savings is enough reason not to think otherwise. Typically, interests from savings, unless you placed it in a high yielding investment, would tend to be lower than the interest of debts. If placed in a high yielding investment, the risks become higher, hence the only sound and sensible option left is to pay off your debt first and resume saving afterwards.

However, there is always an exception to the rule. Some advisers say that low interest or zero interest loans can be delayed for a while. In addition, employer-matched contributions should not be missed. That is free money intended for retirement, hence, in some situations, maximizing retirement contributions should be a priority.

Like many financial decisions, there is no definite right or wrong answer to this debate. Depending on your own unique situation, either of the two may work to your advantage. Instead of arriving at a concrete answer immediately, you should validate relevant considerations first, such as the cost of the debt, earnings from savings, and the future goals. If you are planning to retire early, then you might need to focus more on your savings. If you find that your debts are pulling you down, then change your course of action.

Sometimes, with the right planning and strategies, you may find that you do not have to give up one of them, but that you can actually find the balance to do both. You need to learn how losing one of them can affect each other. Like for example, not having enough in savings might have triggered you to take a loan in the first place, the reason why you are currently in debt right now. If this is the case, then you need to find a solution to fit them both in your budget. This also serves as a good training at the same time and eventually you will find it easier to maintain your financial stability once the two habits are co-existing.

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