Independent Wealth Management

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Save Now or Borrow Later

I’m sure we all recognise the obvious need to save money. It’s clearly preferable to make purchases from your own money rather than from borrowed money, especially when the significant cost of loans is understood.

Over the years, I’ve met many people who permanently live with debt. They often feel trapped with their monthly outgoings escalated by loan charges.

There are some things that we should borrow for, such as property purchase. Few of us can afford to buy a home outright and it’s comforting to know that mortgage costs are generally offset by the rising value of your home.

It is very important to have a savings pot of ‘Emergency cash’ for those short term and unforeseen expenses such as repairs, tax bills, decorating, holidays etc.

Some expenses are ‘Medium term’ and include items such as: car purchase; deposit for a house; education; weddings etc. We all have these kinds of expenses waiting for us at some time in the future, but we do have the choice of saving now or borrowing later. Have you ever considered which costs you less?

Would you agree that saving now and having growth added to your savings, is better than borrowing later and having interest added to your debt?

‘I can’t afford to save’

Some years ago when I had no savings and didn’t feel that I could afford to save, I decided to put £50 per month into a simple Post Office savings account. No risk was involved as I couldn’t loose money and could withdraw if I needed to. I did this from my wages before I bought anything else that month. At the end of the month I discovered I hadn’t needed to withdraw the £50 and I put another £50 into the account. This continued for a few months until I felt confident enough to increase this to £100 per month. Seeing my savings increase for the first time in years was extremely satisfying. With my new found confidence, I decided to set up some medium term savings. I used a unit trust savings plan (a bit like a stocks & shares ISA but without the additional tax benefits of an ISA). Some time later, the inevitable unforeseen expense arose, which I was able to cover from my savings. It was a great feeling knowing that I could meet this cost without borrowing and having the burden of repaying a loan.

I believe that if you’re working and not already saving on a regular basis, you really should be. The short term and unforeseen expenses will surely come, later followed by the medium term expenses. Whether you save or not, these expenses are waiting for you.

Your choice is very simple. Save now or borrow later.

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