At MYJAR we take financial responsibility very seriously. Saving cash on a regular basis is a vital component of a sensible financial life. Having a well-stocked savings account will allow you something to fall back on when you need it, as well as earning you more cash through the interest it generates. However, it is very important to remember that savings are only helpful if you do not also have debts.
When you put your money into a savings account, you are effectively lending it to your chosen bank in order that they can then lend it on to other people. The bank makes its profit by setting the savings rate (the rate at which it borrows money from you) lower than the borrowing rate (the rate it charges others when it lends your money to them). This means that, in most cases, it will cost more to borrow than you can earn in interest on your savings.
Therefore, if you have debts that are generating interest, you should work towards paying these off before you set up a savings account and plan a saving schedule.
Remember this simple equation: Debt-free = ready to save
If you have expensive debts and a savings account, it is highly advisable that you use your savings to pay off your debts. This might feel counterproductive at first; if your savings are wiped out, what will you have to fall back on? However, as your debts will be costing you more than savings are bringing in, it’s certainly worth eliminating your debts before you begin seriously saving.
Pay off your most expensive debts first. If your total savings come to significantly less than your overall debt amounts, you will have leftover debt anyway. Make sure you are aware of which debts are setting you back the most, and tackle them as soon as possible. Your financial burden will be significantly eased once you have dealt with them.
Before you start paying off your debts, ask your individual creditors whether you can lower any of the interest rates. This will help you pay them back more quickly and easily.
Exception to This Debt/Saving Rule:
If you are managing your debt in such a way that it is not generating interest (for example, if you spend on a credit card you repay the full amount on time), you will benefit from saving money and should start doing so straight away.
If you are managing your money responsibly but find yourself in need of emergency funds, a quick loan from MYJAR could be a worthwhile option for you.
Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk.
Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk