Investing isn't always about buying stocks or bonds or putting money into a startup company. Sometimes you have to invest in yourself and consequently, your debt. Think about it. Why are we in the middle of a financial crisis? Sure we can point fingers all day long at banks and mortgage federations, but is it all their fault? Most of the evidence says yes. In reality, finance is in most of what we do: setting household budgets, finding a loan on that perfect house, upgrading to a new car. Experience is the ultimate learning tool, but how much different would the economy be if we all had just read that one book on personal finance?
Nothing is for free. A lot of people don't understand that statement. Buying a house with a abnormally low rate for the first 6 to 12 months sounds appealing. However, no one really seemed to look further than that. After that first 6 to 12 months, the adjusted rate kicked in. Now can we really afford that mortgage? Buying a car with a low down payment and 0.9% APR financing. Sure I would like to spread that payment out. But paying a low amount for a relatively expensive would take years. Just imagine all the interest on top of that. Charging things on a credit card. I don't have enough money to pay all of that right now. Let me pay half now and I can make it up next month. How many people really made it up. Now they are getting hit with ridiculously high interest.
These seem like trivial things but look at how common they have become. Now everyone wants to extend those payments a little further once they have the money. Your income needs to pay these statements off ASAP! Not only are people defaulting on all kinds of loans, they are incurring abnormally high interest rates because they have become a risky customer. The market is not the brightest place to invest right now. So why not take that money and pay off your debt. I promise the money you save will be higher than any the common investor could make in the market any time soon.
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Good advice it would seem. So, now that I am not investing anymore money in the market, what do I do with the money I already have in there? If i sell isnt that just hurting the market, and in effect the economy?
ReplyDeleteAt no point in this stage of the game should you pull money out of the market. If your portfolio went down 50%, it will have to increase 100% just to break even. I want to make the point that whatever income you may usually put directly into equities or fixed income should instead be used to pay off your debt. It takes a while for the market to find a bottom. The money you could possibly be saving in paying off debt early (thus saving on interest) could essentially save more money than you could make in the market anytime soon. I also wouldn't say that pulling money out of the market hurts the economy. Whatever money is in there is meant to stay there for IRA's, 401k's, etc. People wouldn't spend that money on goods that would essentially insert money directly into the economy yet anyway. They keep money in these accounts as long as possible to gain interest and such.
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