Saving today is an unattractive activity. After all, the interest rates are so minuscule, you hardly ever earn anything on it. But as a financial coach, I believe that people should first have savings and use them first when they need to finance large purchases, rather than getting a loan. So if you love your credit card and keep using it for unexpected bills and such, I hope that after reading this article you’ll see that having savings first and then borrowing is a much better and secure way for your finances.
Savings Gives You Choice
Savings are your money, using which doesn’t put you in a position where other people will determine how much of it you can use or whether you can use it at all. Look at it this way – if you borrow when you got no savings, it means that you limit your financial choices with the interest you need to pay back. And what if, while you’re repaying that loan, you loose your job, or something else happens? Using your savings first makes you as flexible as you want even if your circumstances change.
You Won’t Be The Frog In A Pot
You might be asking yourself ‘What the heck is she talking about?’. There is a lovely metaphor for when you pay for things with your credit card – it’s like you’re a frog in a pot that doesn’t know it is in danger. The water is cold while you keep repaying your minimum amount, but over time it heats up and boils you alive. If you save money and have that emergency fund to tap into when you need it, then you’re really wealthy and smart frog.
You Don’t Need To Borrow
Just a gentle reminder that borrowing is more expensive than saving. You are paying the interest, rather get it paid to you. And, some things don’t need to be paid straight away. Can you wait until you can afford it? If not, then can you find a cheaper way of getting it? If it is an item – can you borrow it instead of asking for money?
Unexpected Stuff Really Happens
Just the other day one of my friends had to pay a hospital bill of £15,000. And guess what? They paid for it on their credit card. And they did repay it, but it took them a lot of stress and a rapid repayment plan before the interest-free period ended. My friend really didn’t see that coming, and really no one did.
But I’m not saying you should brainstorm every possible ‘what if’ situation and become miserable just by doing that. I mean – prepare for whatever comes and save yourself from stress in the long term (or even in short term, we never know).
Insurance For Everything
So if you have savings for whatever unexpected situation that could appear in your life, then the life becomes a whole lot more secure. You don’t have enough for your energy bill? Use your savings. You are getting kicked out of your flat for some reason? You got money to be prepared to move in somewhere else. You lack some money to pay this month’s mortgage and its interest? You got your savings. Need to make a sudden operation but the bill will be hard to look at? Well, with your savings you might be able to cover it.
But if you use your credit card regularly on some small things and then something happens that you need money for, and you borrow it too – then your finances are no longer secure and paying for everything else in your live will be much harder.
So I invite you today to spread this message – you should save first and only then think about borrowing.
Thank you for reading this post, I’ll be back to you with more money wisdom’s for artists tomorrow!
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