What Should You Do With Your Savings?

What Should You Do With Your Savings?

What Should You Do With Your Savings?

What Should You Do With Your Savings?

Tori Dunlap, founder of Her First $100K, a financial advice blog, agreed.

“One of the most common questions I receive: ‘Should I save first, or pay off debt first?’ If this year has taught us anything, it’s the importance of saving an emergency fund. So even if you have a good chunk of debt, prioritize saving three months of living expenses first,” Ms. Dunlap said, adding that she used a savings surplus this year to increase her emergency fund to a year’s worth of expenses.

And where should you put that money? In a high-yield savings account, like those offered by many online banks, like Ally or Marcus. (A high-yield savings account is one that offers a higher interest rate than typical banks. Here is a good place to see which banks are offering the most, though don’t expect to earn much.)

Step 2

This isn’t the most glamorous path, but it is the one that will offer by far the highest returns. After padding your emergency fund to a comfortable level — around six months of expenses, give or take — consider putting any extra money you were able to save toward debt with interest of around six percent or higher, experts said.

Carrying high-interest debt makes the magic of compound interest work against you: Whereas in a savings account, the more you save the more interest you earn, with high-interest debt, the more money you owe the more interest you owe.

“You have to get very aggressive with high-interest debt, because the problem with high-interest debt is you’re turning compound interest from being a force for good and turning it against you,” Mr. Preston said. “It’s not uncommon for credit card companies to charge you 16, 17, 18 percent.”

There are a lot of strategies to paying off high-interest debt, so if that is a priority for you, read this deep dive on paying it off.


Source link

Check Also

My Boyfriend Has Two Girlfriends. Should I Be His Third?

My Boyfriend Has Two Girlfriends. Should I Be His Third?

My Boyfriend Has Two Girlfriends. Should I Be His Third? My Boyfriend Has Two Girlfriends. …