It is always advisable to build an emergency fund by saving a portion of your income every month. An emergency fund is always handy when you incur unexpected expenses such as; medical bills and car repair bills. You can’t afford to put such expenses on hold. If you don’t have savings, you will be forced to take out short-term loans such as payday loans to cater for the expenses. Saving money has always made sense. There are however exceptions. Below is a discussion to help you make an informed decision if you are torn apart between saving and taking loans.
Saving money is highly recommended
You should always strive to save a portion of your income every month whether you have loans or not. Developing a saving culture is important because there will always be something that you can buy with excess money. Furthermore, life is full of eventualities. You can fall sick, get involved in a car accident, lose your job, etc. When any of these eventualities happen, you need to have an emergency fund to cushion you before you get back on your feet. In such cases, you may not be able to qualify for a loan. Your savings will be your last resort. Having substantial savings also gives you that much-needed peace of mind. Many people suffer from financial stress because of living from hand to mouth. You need to save to avoid unnecessary stress when you incur unforeseen expenses.
When is taking loans better than saving money?
When you have a business idea that requires a substantial amount of money, it may be better to take a loan than to try and save up money. Taking loans for investment purposes is advisable. It can take you decades to save up enough money to start your business. Furthermore, most business opportunities don’t remain viable for long. You will almost always lose out if you save up to start a business. Savings can only take you so far if you don’t have a substantial income. There is nothing wrong with taking a business loan provided you have done your research. You should also make sure you get favorable loan terms.
Short term loans like payday loans are also ideal when you don’t have access to your savings. If you have a locked your savings in a savings account, you may not have immediate access to your money in case of an emergency. Payday loans come in handy in such cases. The loans are available instantly at reasonable interest rates if you borrow from a reputable payday loan lender or use a licensed broker like Swift Money. Payday loans are also easier to access. You can apply online. Some savings accounts aren’t accessible online. In cases where you don’t have the luxury of time, it’s always better to take out a payday loan or other types of short term loans instead of waiting to save up.
Saving and taking loans
There is nothing wrong with saving and taking loans at the same time. As long as you qualify for a loan and you have a good reason for taking the loan, you can save while you take up new loans. You should stop taking up new loans if you will have problems repaying them. However, don’t forget the benefits of taking up loans. For instance, you are bound to boost your credit score by taking up new loans provided you service them as required. Savings don’t offer such benefits.
Should you start saving after you are debt-free?
Although it is better to start saving when you are debt-free, in most cases, it may take too long for you to start saving if you focus on clearing all your debts first. Some debt i.e. home loans take more than a decade to clear. Home loans can take less time if you channel your savings to repaying the loan. However, it’s not advisable to do so if you don’t have a substantial emergency fund. Your priority should be setting up an emergency fund. Once you have done that, you clear your debt and then go back to building your savings account.
Furthermore, it may make more financial sense to service debt than repay it as soon as possible. Most lenders charge fees for early repayment making it better to continue servicing debt. You may also be getting a loan at a very good rate.
When it comes to saving vs. taking loans, it’s a matter of perspective and scenario. It is prudent to save in most cases. In other cases, however, it may be better to take loans. In a nutshell, it is up to you to analyse your current situation to be able to make an informed decisions.