Savings vs. Debt – The Good and Bad News on How Interest Affects Life
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Savings vs. Debt – The Good and Bad News about How Interest Affects Your Life
After analyzing various elements regarding savings, am surprised to realize that debts have a direct impact on one’s savings and retirement and affect the amount of money in both cases. One cannot discuss about debts without touching on savings. On the other hand, one cannot discuss the realities of savings without bringing on board the effects of debts. This paper therefore focuses on realities of savings but briefly, touches on debts as the two issues are interrelated (Appleby, 2012).
A debt can be bad if the amount borrowed is used in purchasing things like clothing that do not appreciate therefore reducing the ability to save. However, if the debt adds value in one’s life then it is a good debt and increases the ability to save. Investments leading to good debts include education, mortgage or business. Bad debt attracts interest on one’s debit card and the balance carried monthly. Both types of debts must be repaid within the shortest time possible because the more the debts the higher the obligation on repayment especially when the repayment period is spread so much, which means saving becomes strenuous (Khalfani-Cox, 2012).
Considering the amount one needs to save for retirement is important. In addition, savings in a financial institution earns interest and accumulate with time. One can also save by cutting down on expenses when purchasing. This allows one to keep own money instead of borrowed money. Both types of savings are affected by debts, which lowers the ability to set aside money for future use and prevents one’s money from growing (Appleby, 2012).
The quality of retirement depends on the savings. The earlier one starts saving the more the savings at retirement age. Regardless of the method used to save for retirement, money must be put aside. When bills are high, they affect preparations for retirement. Repayment of debts must be prioritized for comfortable contribution towards retirement savings. It is therefore paramount to repay all debts before retirement age especially if the debts attract interests that are higher than the rate of return from the investments. New debts should be avoided towards the retirement age (Khalfani-Cox, 2012).