Do it anyway…
One of the most common questions I am asked is “Should I pay off my debt or Invest?” Logically, the answer is simple, pay off expensive debt before you invest, but this doesn’t take human behaviour into account and in the long term can result in someone ending up with no investments.
Why? Debt has a habit of being continually paid down and built up again, despite the best of intentions. So basically, unless you have never built up debt again having paid it down, invest anyway. This blog will give you one way to do that – sensibly.
In this uncertain world, you have to look after number one – you and your family. Keeping yourself ‘liquid’ is a very smart move. We are quick to forget a short nine years ago when the credit crisis really hit and banks stopped lending money – to anyone. Even “access bond” accounts were frozen. Going even further back into the 90s, interest rates went over 20%, doubling and tripling bond repayments. How would you fare if that happened again?
You’ve probably heard the phrase ‘pay yourself first’ numerous times – but what does that really mean? Does it mean you invest and your creditors must wait? No. It’s important to preserve your credit rating (some employers look at this too.) It means that you put yourself in the position that you get rid of the albatrosses around your neck, and gradually take back their share of your pie.
Cleaning up your act so that every month you put something into investment is a phased approach. It’s like all good intentions, if you want the habit to stick, you start to do something PHYSICALLY – but you don’t go all out or you – and your goal – will burn out. This is why I like the step-by-step approach. Putting your money on ‘diet’ is like going on diet to lose weight, you can’t go ‘cold turkey’ – money has to be spent on necessities and food has to be eaten so you don’t die – but you’re not going to die if you stop smoking, drinking or spending on luxuries – even if it feels like you might.
Step 1: You need to know what your present status in broad terms – what your ‘liquidity’ looks like. In other words how much money you have left after all the fixed and regular payments have come off, including your credit card payment (irrespective if it was in full or partial) from the previous months. If there is nothing or you’re going deeper into debt every month, you have little option but to dig deep into those expenses and find out what or who is poking holes in your wealth bucket. The lowest hanging fruit is day-to-day expenses. You have to break the cycle and find the best way to do it – for you. If you’re this far down the hole, you need to stop digging. Take out the cash needed for the bare minimum of day-to-day expenses and don’t touch your bank account or cards for a month or two. This ‘cash diet’ can break unhealthy habits pretty quickly.