In most cases, financial experts advise against investing when you are in debt, but that isn’t always the case. It takes money to make money, and individuals who are in debt often don’t have anything extra to put toward this purpose. However, a person can’t put off saving for retirement forever, and the sooner a person starts putting money away for their senior years, the better off they will be when this time arrives. What should a person take into consideration when deciding whether now is the time to invest?
Interest Rates
One thing to consider when determining if now is the time to invest would be the interest rates you are currently paying. Some financial products come with low-interest rates, such as mortgages and car loans. This is especially true now when mortgage rates are at the lowest they have been in quite some time. Over the long term, the stock market returns an annualized rate of 9.5 percent. If your mortgage and car loan have interest rates below six percent, it makes sense to put money into the stock market rather than paying off these loans early.
Credit cards tend to be a different matter. They come with an interest rate above six percent and need to be paid off before any money is invested. Don’t assume you must continue plugging away at this debt without any end in sight. Many people choose to benefit from debt consolidation to bring these interest rates down and pay the debt off sooner so they can begin investing. You can get helpful information here on this debt relief option.
Cash Flow
Next, individuals need to consider cash flow when determining if now is the time to invest. Necessities must be covered first and any existing debt payments need to be made. Only when these obligations have been met should money be put toward investing. Running out of money before the end of the month is a sign that you need to put more toward debt and save investing for later. Make paying this debt down a priority, however, because people get a psychological boost when they invest money. They know they are planning for their future and this makes them feel good. The investments keep you motivated when it comes to your personal finances.
An Emergency Fund
Finally, be sure to have money set aside for emergencies. Nobody wants to lose money on investments by having to sell to cover an emergency. Sadly, this does happen and it can set a person back considerably. Financial experts don’t agree on how much a person should have in this emergency fund, as some believe $1,000 is enough and others feel a person needs a minimum of three months in an emergency fund for security. Determine how much you wish to have in this fund and put this money aside first. This minimizes the risk of needing to sell investments at a loss to cover an unexpected situation.
Whenever possible, it’s best to pay off debt before investing. However, if you find you are struggling to achieve this goal and you are worried about the long-term future, take the above steps so you can begin investing now. Continue prioritizing the paying down of debt while still reserving some funds for investing. This is especially wise when you can benefit from employer-matching contributions. You want a great financial future and need to take every step possible to ensure this is the case. Investing wisely is one way to achieve this goal.
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