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Nov. 5, 2019, 5:13 a.m. qualiacredit
If you have a portfolio of debt that you are managing, you really need to start saving money. Paying off debt without saving will never get you to the point of being able to break the borrowing habit.
If your finances are in really bad shape, you may need to get them stabilized before you can start saving. In extreme cases, it may be appropriate to seek help from food pantries or the like. You can start with these techniques for paying down debt even if you aren't yet ready to save in order to position yourself to eventually save:
When debt is out of control, you need to either reduce expenses or increase income or both. Trading a hobby -- which is an indulgent expense -- for a part-time earning opportunity is a way to do both at the same time. It's a power move that simultaneous trades time spent in the minus column to time spent in the plus column.
Getting a single debt paid off can free up cash flow and give you needed maneuvering room. You shouldn't just add a little more in payment to all of your debts. Instead, pick one and focus on getting it cleared out.
There are two possible approaches here:
Take some time to crunch some numbers. If cash flow is really problematic, it may make sense to pay off the smallest debt first, even if it isn't a high interest rate debt. That can give you the breathing room you need.
If you aren't in such crisis that you desperately need better cash flow, you should target your highest interest rate loan. It will save you the most in interest to pay that loan off first.
Once you have paid off your first debt, you will have more money to work with to either pay down debt or invest or both. At that point, you should prioritize paying down high interest rate debts when dealing with the debt side of things.
The first thing you need is an emergency fund. This should be money you can access readily, such as a savings account. The point is to protect you from having to borrow the next time you have an emergency. If you have no emergency fund, you have no real choice but to put it on your credit card again.
After you have an emergency fund, you need to learn to invest. Savings accounts don't pay much in the way of interest. In real terms, your savings account may be worth less in the future than it is today because it is not growing fast enough to keep up with inflation.
The fundamental problem here with saving money is that safe savings accounts that guarantee that your money will be there don't pay much in interest. This means inflation will erode the value of those funds. When expensive coffee is \$10 per cup instead of \$5 and your \$5 savings has only grown to \$6 with interest, you have fallen behind financially.
Instruments that pay more tend to be risky, so you need to use different instruments appropriately. If they are too risky, it is like gambling rather than saving. You always need to balance these various concerns of making sure you are saving enough, your savings is secure enough and it's not losing too much value.
Stocks are the way to go to save money in a way that will keep up with inflation and possibly surpass it. There are myriad ways to approach investing in stocks. Start learning about them while you are establishing your emergency fund. Don't wait until you are financially positioned to invest to start doing the reading.
Here are a couple of solid approaches to investing in stocks:
Once in a while, the market loses it's mind. Even Warren Buffet temporarily got out at one point. But most of the time, ups and downs need to be largely ignored. You need to view down markets as "picking up stocks at bargain prices."
For most people, paying off debt isn't much fun. It's much more fun to spend money on nice clothes, good meals and vacations.
But if you want financial security, it's an important first step. But don't stop there. You also need to start building your nest egg.