You’ve made a little extra money with your last paycheck and have some leftover after paying for your mortgage or rent, plus any other necessary bills. Rather than spending the money frivolously, you want to stash it in a savings account or use it to knock out some of the debt that’s been weighing heavily in the back of your mind.
But that’s the million-dollar question: should you save your money or pay off your debts first, especially when it comes to spending extra earnings long-term?
In truth, both of these paths can be beneficial. But let’s break down the benefits of saving your money or paying off your debts first, so you know what to do come next payday.
Saving Money – When Is It a Good Idea?
Saving money is always smart, and it’s easier than ever, thanks to automatic saving apps. In addition, the banking and financing industry offer their own tools thanks to AI Chatbots and similar developments. In any case, saving cash can be an excellent choice if you want to build up enough money for any of these goals.
An emergency fund is a little extra cash you stash away for the proverbial rainy day. With an emergency fund, you won’t have to take out a loan or use your credit card to cover the cost of car repairs, home repairs, or even minor medical bills. Plus, an emergency fund can help tide you over from job to job if you lose your current position due to a world event like the pandemic or something else.
If you don’t have an emergency fund in place, you may need to take out personal loans that allow you to borrow money for a set period of time. However, you’ll then need to pay back the loans sooner or later, adding another debt to reckon with later down the road.
Save Up for a Big (Necessary) Purchase
It’s also a good idea to save money to make a big purchase rather than use a credit card or loan whenever possible. Save up for a TV, a new car, or even new furniture for your house, and you’ll avoid damaging your credit score, plus practice good financial responsibility.
Add to Your 401(k) Plan
If your employer has a 401(k) plan with a good matching percentage, it’s a no-brainer to funnel some of your paycheck into that plan, so you benefit from maximum retirement savings ASAP.