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Okay, since most people do not "live below their means" as we talked about in our last newsletter, most folks are in debt to some degree or other. What do we do with any extra money we may have left over at month's end?
The decision here is whether to invest the extra cash or use it to reduce our debts. The most efficient use of the money in almost all circumstances is debt reduction.
There are two main factors for this:
1. There are no guaranteed rates of return when investing in stocks or mutual funds. And investments in regular savings accounts or Certificates of Deposit usually pay at rates below what we are charged on our debt balances.
2. When we pay on a debt, we are guaranteed a specific rate of return. If we use the money to pay down a charge card that carries a 15% interest rate, we are in effect getting a 15% rate of return on that money.
Where possible, put your money where it will do the most good.
Until next time, Al Crisp, CPA
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