Saving and investing is what makes your future secure and comfortable and you should always save a certain percentage of your income. You should also invest a part of it to build a better future for you and your family. However, there are times when you’re burdened with increasing debt part of your personal finances that don’t allow you to save and invest money. In those hard times, it’s perfectly fine to first lose your financial burden and then think about saving and investing as it gets easier.
Here are the 5 times when it’s OK to pause saving and investing:
When You Have No Emergency Savings
Saving and investing is for the distant future, but having an emergency fund is the most important defense against the unexpected events such as a car or kitchen repair, an emergency business trip, or a need for medical assistance.
So, before you start investing your savings for a secure and comfortable future, you need to secure your present by having an emergency fund. Experts suggest that a 3 to 6 months’ worth of your salary should always be a part of your emergency fund. The further you save can play their role in your investment plan.
Related Article: 10 Crucial Tips to Build Your Emergency Fund
When You Have Too Much Unsecured Debt
If you’re paying off a high-interest, unsecured debt, then you should first consider reducing the size of your debt by paying off a considerable part of it at once with your savings. It will help you reduce the amount of interest that you’re paying.
If your debt is at a crisis level, consider debt consolidation to get it under control. It’s better to start investing your savings after reducing the size of your debt so that you can avoid or minimize the loss that you may have to incur by paying the high-interest debt.
Related Article: The Truth About Debt: Why It Can Be Your Friend
When You Don’t Have a Regular Income
When you don’t have a regular or dependable income, like when you’re struggling for a job, starting your own business, or a self-employed with minor financial situations, it’s better to first manage all your financial needs for the next three to six months and start considering investing for a later time.
What’s better is to focus on regulating your income to have a good financial strategy in place. Once you relax your fluctuating income and are able to predict the amount you’ll be able to save each month, you can start looking at your investment options.
When You’re Already Coping with a Financial Crisis
The first response, when hit with a financial crisis, is to gather all your sources of money at one place and use them to solve or at least control the threat level of that particular financial situation.
So, if it’s a sudden income loss, a potential layoff, a medical or family crisis, or other life emergencies, it’s better to first deal with the crisis and focus on stabilizing your day-to-day finances first, and then think about investing.
When You Don’t Know Where to Invest
Never invest into a plan that you don’t know everything about. If you don’t know thoroughly about the risks, the potential return, and what the experts say about its opportunity, it’s better to first do your due diligence.
It can be your biggest mistake to invest your money without knowing the actual value of your prospective gain out of it.
An Important Tip for Married Couples
Married couples have a greater responsibility at managing their personal finance. If you’re married, you should first discuss your investment plan in full with your spouse. The discussion will need to cover three key points, which are:
- First, the goal of the investment plan. What’s the need of the plan and what actually are we hoping to achieve?
- Second, all the criteria about the plan. How exactly will the plan be put to work? How sensible investment choices are? Where are the accounts and under whose name?
- Third, the value of the goal for both the partners. Is the goal something that matches with the values of both while also achieving them?
Having this discussion with your spouse can avoid the trouble down the road, which can start as soon as your spouse notices the money vanishing into an investment account.
Content Courtesy: Trent Hamm, a personal finance writer
So, these were a list of cautions for those planning for saving and investing. In our blog next week, we’ll tell you about the different types of investors that people are, and the chances for each type to get better investment returns. Till then, wait for improving your chances!