Plug the Holes

Save and invest – have become the most favorite words for almost all the financial gurus, planners, advisors, insurance agents and financial advisors. There is an ever-increasing sense of Urgency to grow your money as much as possible as quickly as possible.

Most touted statement these days is – Whatever you have to do, just don’t stop investing. As soon as your salary gets credited separate the amount (20% – 30%) that you must save/ invest. Then use the leftover to spend for your monthly expenses.

Most of you would say – What’s wrong here? Isn’t it important to save for tomorrow?

Agreed we all must save for tomorrow. There are certain situations in which this statement becomes the cause of biggest drain in your savings.

How can Saving drain Savings?

Just like a bucket with holes can never be filled up to the brim, carrying high interest debt will never let your savings grow!

You need to spend $40,000. You have $40,000 in your account invested @ 5% per annum –

Scenario I – You take a personal credit card debt of $40,000

Personal/ credit card debt of $40,000 from with one year payback tenure

Your payback to bank would be $3463 (monthly instalment) and $324 (service/ Admin Fee)

Leads to total payback of $41,880 to bank

$40,000 in your account earning 5% per annum

At end of year you would have $42,000 in account

It seems like a good deal. $42,000 in account at end of year.

Scenario II – You decide to pay $40,000 from your account and invest monthly instalments you had to pay for loan @ 5% per annum

Pay $40,000 you spent from your account

Invest $3,463 every month @ 5% annual return

You would have accumulated $43,039 in your account by end of year

End of year you have $43,039 in your account.

If it was me, I would prefer the second scenario and be richer by $1,039 in one year though this simple trick.

What do you say? If it was you, which scenario would you prefer and why?

Beware of SMALL Expenses. A small LEAK will SINK the Ship. – Benjamin Franklin

Save and invest – have become the most favorite words for almost all the financial gurus, planners, advisors, insurance agents and financial advisors. There is an ever-increasing sense of Urgency to grow your money as much as possible as quickly as possible.

Most of you would say – What’s wrong here? Isn’t it important to save for tomorrow?

Agreed! We all must save for tomorrow. But, there are certain situations in which this statement becomes the cause of biggest drain in your savings.

How can Saving drain Savings?