Save more by paying off debt. March 2, 2008
Posted by BDO in Money Received, Money Spent, Multimedia.Tags: Debt, money, paying, saving
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Many books and companies try to sell us on the idea that putting our money into their investment vehicle will drive us to financial success. They sell us things like high yield CDs, money market accounts, stocks, bonds, real estate, and even art, all in the hopes that they can receive a small commission from their convincing wisdom. Though it is very good to save for future retirement in government sanctioned IRAs, there is a more potent, satisfying, stress reducing, and guaranteed way to increase net worth. It is so effective, because it is part of the KISS…Keep It Simple System!
Who needs to worry about recessions or the value of the dollar when we can pay off debt and receive a guaranteed rate of return. Right now, the debt we have can earn us a great return on our money. How? By paying off our debt, the interest we would have spent on by paying off credit cards and loans with the minimum payment would all be extra cash in our pocket for the future.
In addition, by paying off debt we will be increasing our net worth. By calculating our assets minus our newly reduced liabilities, we will have a larger total net wealth.
This method is so simple unlike other investment vehicles. Other investment vehicles charge us management fees and buy/sell fees. In addition, any return we do make on these investments the government wants a piece of in the form of capital gains tax. However, paying off debt has no extra payment fees and the money saved will not be taxed.
Basically, if we have a choice between paying off credit cards and other personal loans or putting some money away into a mutual fund, we need to choose the simple, guaranteed method of paying off debt to get the max amount of return on our investment and net worth.
Once we are out of debt from credit cards and personal loans, than we can start worrying about stock prices and if the market will grow this year or not.
Below is a video depicting some of these ideas.
A Kid's Guide to Managing Money (Ready-Set-Grow Series)
i really like this idea…because it’s one that i can handle! but doesn’t bother you that money in a checking account is just sitting there, not earning?
Like, I spend at least 25 dollars a month (Easily more, actually) on Starbucks. So doesn’t make sense to just make a frappe at home and then use that 25 bucks towards an investment? As long as I’m still able to pay off my loan and credit cards?
But I think i need to heed this advice for at least the short term… i’m becoming slightly overwhelmed.