Posts Tagged ‘difference’

I found this recent TED Talks video of Rick Smolan (a photographer for Times Magazine) presenting an amazing story about Amerasian girls. Rick Smolan’s presentation says more than I ever could so here it is.

The simple answer…..Maybe. It really depends on your situation. Those who have no debt should be saving as much as possible, and the younger you are the more aggressive your investments should be. The reason is that you have many years to make up for down years.

For those of you who have debt, then you should only be saving if you can make a better rate on investing than you are paying in interest. If you are making less in your investment than interest, then your investment is costing you money. Especially for those who are just putting money into savings accounts. This seems simple, but a lot of people are doing exactly this. I think it is smart to keep a small amount of money saved for emergencies, but besides this, it is usually best to pay off your debt before investing. That is especially true for credit card debt where the interest may be around 20%.

Below I have done a few calculations to show exactly how much you are loosing if you are putting money in savings with debt. I have used the amount of $10,000, and the difference will be even great the more money you have saved.

Savings account

Principle= $10,000

Interest=$3%

Time=1 year compounded monthly

Value in 1 year=$10,304.16

Debt

6%=$10,616.78

Total investment= -$314.62

10%=$11,047.13

Total investment=-742.97

19%=$12,074.51

Total investment=-$1,770.35

So as you can see, the higher the interest rate the worse off you are to put money in savings. The only case where this would not be true is if you can make a higher rate than what you are paying on your debt. The ability to do this is more difficult the higher the interest rate you are paying for your debt.