Should I save or invest? This is a question that has faced so many so often. The answer to this simple question is almost always the same: it depends. It depends on what you’re saving in, what you’re invested in, the expected interest rates you can achieve, etc. It also depends on your level of emergency fund, the stability of your job, the happiness of your spouse, etc. So, rather than trying to answer this question for everyone else, I’ll answer it for myself.
Right now, I have added about $1500 to my credit card balance, which originally was sitting around $0.00. Between expected expenses (which I didn’t have a budget for) and unexpected expenses (which I also didn’t have a budget for), my credit card balance is now $1500. Thank you visa. Granted, I hate debt, and I should have had an emergency fund. But I’m glad I had the credit card because it allowed me to meet some key expenses that HAD to be paid.
Notwithstanding my expenses, I also have a great desire to save for retirement, and build my dividend portfolio. In fact, I started this blog with hopes of building my dividend portfolio. So, now I’m faced with this dilemma. Should I put off building my portfolio so I can get rid of this $1500, or should I continue with my portfolio and then slowly chip away at this $1500 in credit card debt?
Benefits to Saving Money
- Establish an Emergency Fund – saving money will allow me to have a starter emergency fund. My goal is to save $1000 by the end of the year. If I hold off on contributing to my portfolio, I’ll be able to achieve this goal even faster. Technically, the money in my portfolio could be used in case of an emergency. However, I want to treat my portfolio as sacred, for lack of a better word. So, just like my retirement account, I really don’t want to be touching this money until retirement age, which is at least 25 years away (maybe 30). Note, I might still retire earlier than retirement age, but even if I’m able to retire early, I still want the money compounded as long as possible, to at least retirement age.
- Stop Digging a Hole – One of the best things that can be done when trying to get out of debt is to stop getting into more debt. So, if I want to get out of credit card debt, I should stop using my credit cards. Saving money allows me to operate under a cash budget, rather than a credit card budget. With a little perseverance, I can establish a little bit of cushion every month so that I really won’t have to dip into the credit card. It’s kind of like having a mini emergency fund of about $100 or so every month
- Feel Good – There is no way around saying this, but having cash in my pocket makes me feel good. I don’t have to worry about where I’m going to get money to buy food, pay for this expense, or that emergency. I just simply go to cash and spend as needed. It’s a good feeling to have the money to cover expenses whether anticipated or not. It also gives me money to go out and have fun with friends and just generally enjoy myself. If I see something on Amazon that I want to buy, then I buy it with cash (ie debit card). So, having cash is definitely a good thing and having cash makes me feel good.
Benefits to Investing
- Secure Future – With investing, I’m sacrificing fun now so I can have way more fun later. Maybe that’s a poor way of describing it, because you can have fun without spending a lot of money. But, basically, I’m giving up a little bit of my lifestyle now, so I can have more of a lifestyle later on when I retire. Investing helps secure my future and gives me the prospects of being able to support myself and not dependent on anyone, or even the Government, to support me.
- Compound Interest – Ahh, the 8th Wonder of the World, according to Albert Einstein. Dividend Growth Bunny has a post on his blog about compounding and the benefits to it. The earlier you start investing, the more compounding works in your favor. With this Dividend Portfolio, the more dividends I get, the more those dividends will be able to buy more shares. The more shares I have, the more dividends I will receive, which will be able to buy even more shares. And so on and so on and so on!
- Feel Good – I’m not going to lie. It feels good to invest as well. It’s sad when I listen to podcasts, and people call in and say they are in their late 50s or 60s and haven’t really saved anything for retirement. I’m sure they’ve thought about it during the years, but never did anything for one reason or another. I was in the same boat when I was in my 20s. I rarely put investing as a priority, and now, before I knew it, my 20s are gone and I can’t get them back. So, if you’re in that boat, I’m sorry. I can’t give financial advice, but I’ve heard that it’s never too late to start investing.
If you think of any other benefits to saving vs investing, share your comments below.
For me personally, paying off debt is more important than investing. Credit cards rates are really high and slowly knocking down the bill will eat into any dividends received. It’s a mindset thing. If I’m debt free, I’m more willing to focus on investing. However, some debt I would keep if the rate was lower than expected returns. My student loans for example, I carried these for 15 years, because the rate was near zero.
I feel the same way to some extent. But, I don’t want to focus exclusively on paying off debt and not do any investing. Luckily, my credit card debt is relatively a small amount right now. I’m trying not to make it go over 2k, and more importantly, I’m trying to bring it down to $0. The thing though is that I don’t want to lose the momentum of doing monthly investing, even if the amount I invest in monthly is also small. But, I think each person has to do what they feel is right for their situation. I appreciate your thoughts on the matter though.
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I’m not sure if my approach is wise or not. It has been working for me though for a number of years and makes me happy. I’m hyper paying off my mortgage. I have a car loan which is at 0% so I just let them take what they must on a bi-weekly basis. I don’t carry credit card debt over. That was a scary part of my past. I do use the main credit card though for everything and it is all budgeted quite well. The other cards have at least one charge which are auto paid monthly just to keep the good credit history going. I don’t exceed what I budget. A lot of times I under charge – groceries being an example. Whatever I don’t use just builds up in the chequing account. It is acting like an emergency fund. It is always over $3500 but it is sitting at 7k now. I don’t really know what to do with the extra cash so that’s why I’ve decided to go back to reading blogs from other investors. I’m planning on getting back into investing regularly. I just have to make sure that the property taxes are covered which I could do by just moving an estimated amount elsewhere.
Is shelling out $1600 bi-weekly overkill on a mortgage? $1100 is forced while the rest I put on towards the principle when I can afford it according to budget. I bumped it to $1650 just last week as I cut the cord again on cable. For the longest time prior I didn’t have cable TV. I felt again no need to have it. Work pays for the cell phone. Mortgage initially only called for $800 bi-weekly. I could request it lowered back to $800 from its current $1100 anytime. I also pay out $2500 to my son’s RESP (education fund) yearly which is covered for this year. I manage those funds as well. He’s only 4. Of course, there’s also property taxes around June each year which keeps going up each year – thank you Edmonton. My goal is to be 100% debt free by 45. It most likely will take an additional year due to unexpected events but that’s my goal.
They say that you should pay yourself – but I hardly do. I usually end up regretting it (Dairy Queen blizzard for example). I could put all of that towards investing towards our future.
Good luck on your goals. They seem well thought out and achievable. I have a similar retirement goal in that I want to retire around 15 years from now. We will see what happens.
The fact that you’re paying extra on the mortgage is definitely one way in which you can payoff the loans quicker. It’s something I’m considering as well – from time to time. But, in the mean time, but I honestly keep going back and forth on the issue.