To Save Or Not To Save…

An email was received from an Epitome Magazine reader asking what to do about her financial situation.  Specifically, she asked what she should do with a sizeable amount of money in a savings account.  Due to her situation, the recommendation was for her to leave the money in a savings account instead of placing the money in a potential higher earning investment account.  Instead of focusing on saving, she should focus on the immediate situation she was facing.  I am certain that she is one of many people that have asked or will ask do I save money, or do I not save at all?  The answer is–it depends.

Saving for retirement is a must; however, we all need to take a good look at our present situation and make sure we don’t allow a one-size-fits-all investment approach for us.  Previously, many have been told to put as much money into investment accounts despite looking at their overall financial situation.  If you have massive amounts of credit card, student loan, car, and mortgage debts, it may be more advantageous for you to pay the debt off before beginning an aggressive long-term investment plan.

Despite your debt amount, there is one situation where it is to your advantage to invest.  For employer sponsored savings plans with company matching contributions, you should at least contribute the minimum amount required to obtain the maximum matching contributions.  For example, if your employer provides a 7% match of your income if you contribute 6% of your income, this is free money, and you need to take it by investing what is required to obtain the contribution.  If your employer does not provide a match to your contribution, it may be more beneficial for you to pay your debt off.  Remember that paying off debt does not “entitle” you to obtain additional debt.

One important long-term goal is to have your home paid for prior to your retirement, and it is important to factor in additional payments if necessary to achieve this goal.  While 30 year mortgages allow you to have a lower payment compared to shorter mortgage terms, you need to adequately plan to ensure you can enjoy retirement without a mortgage.  You will still be responsible for taxes and insurance, but owning the home without a mortgage payment reduces some of the financial need during your retirement years.  Besides paying the mortgage completely off, you also need to have enough income to last in your retirement years.  You should establish “streams of income” that will last a lifetime through retirement savings, starting a business, or a part-time hobby that can provide a financial reward for you and your family.

To save or not to save varies for everyone depending on specific situations, and while you may be in a period where you should not save, once the period passes, you should continue your plan to ensure you have a prosperous financial future.

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