Many individuals have come to think that it is very important to fully understand their retirement needs and put those needs to rest by putting aside a percentage of their paycheck into a retirement account. For the individuals who have already discovered the importance of this specific phenomenon known simply as retirement savings, then there is absolutely no problem with their habits as they will get ahead in the long run. When people need our Carson payday loans services for emergency needs we are there. However, while retirement saving is definitely a priority that many individuals should have as they move forward, one of the most important concepts to remember is that interest on debt usually outpaces interest on savings. What does that mean to you? You should think twice about how you use your money to maximize your time.
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Let’s look at a simple example to see exactly what can be had from this information. Just for simplicity sake, we can assume the following:
Money to work with: $200.00
Interest Rate of Savings: 5%
Interest Rate of Debt: 10%
Current Amount in Savings: $200 see it here.00
Current Amount in Debt: $200.00
By going through a few quick examples, we will be able to use the overall information to see exactly what happens in these debt / savings interest rate scenarios. Let us assume that you have an extra $200.00 to work with, and being a savvy investor, you want to put your money to use.
In the first example, you know how important it can be to save for retirement, so instead of paying off the debt and getting it out of the way, you will have a situation where you can add to your savings. After one simple pay period (with all else assumed to be the same), your total debt would be $220.00 (original $200.00 plus the 10% interest cost). Your total savings would be $420.00 (original $200 plus additional $200, then the 5% interest cost). And if you took the difference, you could see that you savings minus your debt would put you at $200.00 gained in this scenario.
For example two, let us assume that you wanted to get out from the debt overall, and be able to free up your future cash in the process. So, instead of saving more, you wanted to split the money and put $100.00 towards debt and $100.00 towards savings. By doing the math you could see that your total savings actually rises up to $315.00. You can also see that your total debt drops to $110.00. And, using the same net formula of savings minus debt, you can see that the overall figure would be $315.00 minus $110.00 which equals $205.00. In other words, by putting a little bit more of your money into debt in this specific example, you have less in your overall savings, but you also have an even greater amount less in your debt. This is a very interesting situation indeed.
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Finally, let’s take a look at one more simple example where you can assume that you would like to 100% eliminate your debt. By putting $0.00 into your savings, you will only have a very modest amount of $200.00 plus your interest of $10.00 for a total amount of $210.00 in savings. You basically did nothing to increase your retirement funding in this scenario (you actually did nothing more than just collecting the interest). However, from the other part of the equation, we can also see that the $200.00 which is your extra funding is completely and fully able to eliminate the $200.00 that you owe in debt. Also, if we use the same formula to find out our net savings minus debt, we will get $210.00 in this example which is the highest net gain overall.
This is not only the best example overall in terms of net value, it is also a great long term strategy because it rids you of your specific credit payments as well. In other words, you don’t quiet end up saving anything extra in this scenario, but you do wipe out all of your debt and in the process you end up freeing up all of your money in the future. This is actually a very beneficial move in itself because you don’t have to keep paying a monthly credit card payment, and you won’t keep adding debt in the form of interest as well. In case of an emergency, you can use the services of Carson payday loans.
Let’s take a closer look then at what we did and why. Overall, we were able to maximize our net value by focusing on the individual account that had the highest weight. For any given dollar invested into the retirement account, we would be gaining 5% in interest, but also accruing an addition 10% on our debt. Or, for that same given dollar we could eliminate the debt which had a rate of 10% as compared to the interest that we would lose out on, which carried a rate of only 5%. To make a long story short, in this specific example we would want to focus on the debt because the interest rate was much higher than the interest rate of our savings and retirement account.
So what does this mean for you? You clearly need to double check your accounts and have a plan. Yes, interest rates can be very enticing and they should be looked at in a way that will benefit you. However, if you focus on the most powerful interest rate (with respect to how it affects you and your money), then you should be able to maximize your specific value. In this case it was important to take a look at eliminating the debt because you might think that you were doing the right thing with saving when you were actually leaving money on the table by continuing to pay off your debt over the long term. However, all cases can be different based upon the different variables, so it is definitely important for you to look into what is the best option for you. Check the variables, understand the rates, and come up with a plan that will meet your needs.
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