Should I Save Money or Repay my Debts?

If we have some savings or are in a position where we could put some money into a savings account but we have loans, then we may wonder whether we should be saving the money or repaying the loans. It can be a tricky decision and it is worth taking time to think about what might work the best for you.

Advantages of saving money

Having some money in a savings account can give us a sense of security. Knowing that you have something there in case you need it can make a big difference to us. If something breaks down and we need to find the money to replace it; knowing the money is there can give us peace of mind. If we find a good savings account, we will also get interest on the money. This will give us a little bit of an incentive for saving money and will mean that it will not lose value so quickly with inflation.

If we spend less money on objects it means that we will have less things to fill out homes with. This can be good because we will not need such a large house or not feel so cluttered by the items we have. Often, we will have a sort out every so often and get rid of a lot of our possessions because we no longer want them anymore. If we had not bought them in the first place we would have not had to go through this process and would still have the money available to spend on other things or in our savings account. We will also be being kinder to the environment if we buy less things.

Advantages of repaying debt

If you have loans, then repaying them can save you money. This will depend on the type of loan and how much it is costing you. It is therefore wise to find out about how much you are paying for the loans that you have in interest and charges. You may find that some lenders will charge you if you repay the loan early though. It is good to look into this so that you can calculate whether it is still worth repaying it early. Some may just charge a small administration fee, but some may charge a lot more. You will need to find out how much the fee will be and see how that compares to repaying the loan over the agreed term at the rate that they charge. If you have multiple loans then you may find that some have a fee and some do not. This means that you will be able to pick the ones without a fee to repay.

As you pay interest on the loan all the time that you have it, repaying it early will save you a lot of money. Even if you just repay some of it, it means that there will be less money to charge interest on and so you will pay less. Even though you will not have so much money to spend or save if you repay the loan with your money, it means that in the long term you will be better off. Once you are free of loans, you will no longer be paying interest and have all of that money available to you to spend instead.

Working out which is best for you

All of us are different in how much we earn, what we owe and how we feel about spending and saving. It is probably most sensible to repay our debts rather than put money into a savings account unless we have such high charges for this that it makes us worse off. However, we may not want to do this and may think that paying the fees for the loans will be better than going without this money. The secure feeling of knowing that we have some funds behind us can be better than repaying the loan even though it is more expensive.

We might also be saving up for something specific and we might be really looking forward to it. It could be anything from a new car to a holiday and the thought of having to go without that just so that we can repay some of our loan can be hard. It is worth thinking about the advantages and disadvantages to you. Do the maths and calculate how much money you will save and work out whether you think that it will be worth keeping the savings and having what you want from those or whether you would rather save the money that you are paying in interest and pay off some or all of the loan. It can be a difficult decision as it is often not just a logical one. You might save money repaying a loan but if you want the savings to take your children on holiday they will miss out. So, you need to think carefully about which option will be the best for you.

How to Help Your Children to save Money

Many of us have children and hope that they will learn to spend money wisely as they get older. It is therefore really important to teach them a lot about money including loans and saving. Teaching them how to save their money form a young age will help them to get into good habits when they are older. This could help them to be able to afford to buy all of the things that they want but have an understanding that it is worth waiting for items. Just explaining this to them when they are small does not really help as they have no understanding of what sorts of things adults have to pay for and how much everything costs. Therefore, just getting them into a good habit of saving money will help them to start in the right way. There are some different things that you can do to help them.

Give them a piggy bank

When they are very little get them a piggy bank or money box. Then if they get any money given to them encourage them to put it in. Children like playing with coins and when they are very small they think that the more coins they have the richer they are. Therefore, give them lots of small change and they will really enjoy posting it through the slot in their money box and rattling it inside. It will help them to start enjoying having money rather than just thinking about the sweets and toys that they can buy with it.

Open them a savings account

It is also well worth opening them a savings account. They will be able to put larger sums of money into it, if they are lucky enough to get some. They will also be able to pay their pennies in when their money box gets full. It can be a great for them to experience going into a bank and building society and see what it is like and also to start to understand about savings and interest. It can be exciting for them to get their statements and see how much interest they are getting on their money. It will encourage them to want to keep the money in there and want to add to it if they can see that it is earning them more money.

Encourage them to save pocket money

It is wise to encourage them to save any pocket money they get. This could be regular money that you give them or perhaps from grandparents or from other people. Some children might get a lot of money like this and others not so much. Regardless of whether they get a lot or a little it is good to encourage them to not spend it immediately. This not only means that they will have more chance of holding on to it and saving for the future but also means that think more carefully about what they are buying and will not rush into buying things they later regret. They will also have more money so that they can save up for things that are a bit more expensive. This is also a great lesson for when they are older as we often will have to wait to get the things that we really want in order to avoid borrowing money to buy it. Of course, sometimes a loan is necessary and can even be useful but it is important to only borrow when it will really advantage us.

If they are gifted money encourage them to save it

Often when it is their birthday or Christmas children will be given money as gifts from some friends and relatives. This will mean that they have some money that they could save or spend. As it is likely that they will just have had some new things then it can be wise to encourage them to save this money. It can hard choosing things when they have just had lots of new items and so they may be tempted just to buy things they do not really want because they feel they have to spend the money. Saving it means that it will not be wasted and they could end up having a nice chunk of money when they are older which they could spend on driving lessons, a car, a deposit on a home or something like this. It can really add up and go to something that will have a really big impact on them.

It can sometimes be tricky to encourage your children to save. Some people will give them money and expect them to spend it, thinking they will not enjoy the money unless they spend it right away. Some children ill also feel the same way and so you will need to try to find a way to keep everyone happy and that can be difficult, but you will find a way. Perhaps spend half and save half could be a good way to keep everyone happy.