Naturally, we work or conduct business as a means of saving up money, grow our careers, and buy our wants and needs. However, there will be times where we’ll need to work for years to get our dream house, that one car that we want. This isn’t a surprise when these products will usually have a hefty price tag. That said, saving up for these long-term goals can take a great deal of time, money, and effort.
But we won’t necessarily have to wait for years to get our dream home. There are businesses and organizations out there that can help expedite the process of getting your favorite car that you’ve been saving up for years or a roof over your head through loans. However, these loans mean that you’ll need to continually pay for it until you’ve paid the full amount.
While there’s no hurt in getting loans to ensure that you’ll have a good life, it can be challenging having to take a percentage off your monthly income to pay for debt when it is allocated to more “pressing concerns.” Most individuals will usually save up for an emergency fund or their savings for a rainy day, but most are stuck in a predicament between saving up or paying off their debt.
If you’re having a more challenging time allocating your funds and budgeting for different aspects of your life, you’re not entirely alone in the matter. In fact, household debt that’s entirely separate from household costs has risen in the last 15 years, with the peak being 2020. Inversely, savings from each household have remained stagnant throughout the past 50 years.
Thus, many homeowners are stuck in a rock and a hard place: should they start saving up, or should they start paying off their debt? Here’s what you’ll need to know.
Saving Up Versus Paying Debt
Although many people want to focus on one thing at a time, the most optimal way of managing your finances that many individuals have been following for decades is that there should be a balance of both. You can always pay off your debt while still saving up for the future.
Maintaining a healthy financial mindset means seeing that most decisions are not strictly black and white. Being to accumulate a fair amount of savings will usually be hindered by debt that will usually accelerate over time. That said, just being able to pay enough for your debt while still saving up is the best course of action.
Still, you’ll need to weigh-in on a variety of factors, which include budgeting your emergency saving. Having a time frame where you can contribute to your savings is better than not having anything to contribute at all. If you’re leaning towards paying off your debt, most experts would suggest having at least savings covering for at least one month of living expenses. That way, you can give yourself enough breathing room to get a head-start when it comes to paying off your debt.
Suppose you have around $200 extra funds left with you for each month that you can place on your savings, debt, or both sides. You’ll need to consider how many debt accounts that you owe and put at least around $20 to $30 of your debt for each one, then saving up for the rest.
These “extra funds” that you have should be set aside immediately so that you’ll be able to pay for your monthly expenditure while still having enough for yourself. This way, you are eliminating any risk that you might not have any more money by the end of the month. You might also want to establish a mindset that’s leaning towards saving rather than buying. In the long-term, you’ll have enough savings that can help get you through a rainy day.
But right before you can make any final decision when it comes to your finances, you might want to consider the following factors by asking yourself this question:
What’s My Current Situation?
The first question that you’ll need to ask yourself is the current situation of your debt. Are you about to finish paying it up? Are you just in the first few months of paying it? This is especially important because some types of debt, such as car loans or mortgage loans, will usually have incredibly high-interest rates. Most of these debts can stretch to years and will often have an annual percentage rate.
It’s also important to remember that you’re not alone when it comes to your situation. Others might have the same position as you when they’re paying off the same debt. For instance, the recent COVID-19 pandemic has disrupted loan-issuing companies since many individuals won’t pay their loans on time. That said, many companies will offer hassle-free and lower interest rates. If you’re looking for loans that won’t really affect much of your monthly expenses while still having great customer service, you might want to consider some mortgage companies that are transparent and understanding.
The bottom line? There’s really no one solution right for everyone because we all live different lives, work other jobs, and earn an additional amount each month. But there is still a recurring pattern that’s been tried and tested: having a balance of savings up and paying off your debt can help you out in the long run.