Finance Question #14 - Should I pay off all my debts before I begin investing?
You have some excess cash and you are now faced with the dilemma of paying down debt or investing that money to increase your wealth. If you put all of your excess cash towards debt you may not have enough left over to retire when you're ready to quit the workforce. On the other hand, if you aggressively invest all of your excess cash you may end up losing it all. What should you do?
There are some prominent names in finance who argue that the absolute best way to go is to first pay off all of your debts before investing a single dime. This idea implies that one size fits all when faced with this dilemma. I disagree with this concept. The reason being is because you could miss out on years and years of potential growth that you can NEVER get back, depending on how long it takes you to clear all your debts. Time is an extremely valuable asset when it comes to investing. This is simply because the sooner you get started equates to more time that your money will have to grow.
So here is my philosophy...
You should absolutely dump all of your excess cash on your debts if you are only a year or so away from becoming debt-free, but anything beyond that is a good reason for you to allocate at least some of that excess cash towards investing. TIME is the one commodity you can never get back. No matter how rich or poor you are, everyone only gets 24 hours per day. No one is immune to time. Everyone gets a little bit older with each year that goes by regardless of who you are. Not even the richest people in the world can buy TIME.
If becoming debt-free is not realistically in your immediate future, do yourself a HUGE favor by investing some of that excess cash. Determine your time horizon, risk tolerance, financial objectives, and then place some money in an investment vehicle that is suitable for you. Do not let TIME and WEALTH ACCUMULATION pass you by!
Take charge of your money!
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Disclaimer: Hudson Wealth Management, LLC (HWM) is a FINRA registered investment adviser firm. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and HWM's fee schedule. The information provided herein is for illustrative purposes only and does not constitute personalized investment advice, recommendations or solicitations to hold, buy or sell any investment or security of any kind. All images and return figures shown are for illustrative purposes only and are not actual customer or model returns. Past performance does not guarantee future results.
Prior articles in this series
MONEY QUESTION #1 - Do you live for today, or live for tomorrow?
MONEY QUESTION #2 - Should I "loan" money to friends and family when they are in need?
MONEY QUESTION #3 - Did grade school (K-12) teach you anything about money?
MONEY QUESTION #4 - Why do I need an emergency fund?
MONEY QUESTION #6 - What is the difference between financial security & financial freedom?
MONEY QUESTION #7 - How can I improve my chances of getting a credit limit increase?
MONEY QUESTION #8 - How much emergency money is needed?
MONEY QUESTION #9 - When Should I Start Saving for Retirement?
MONEY QUESTION #11 - How do I get paid what I am worth?
MONEY QUESTION #12 - I want to buy a house, now what?
MONEY QUESTION #13 - Should I pay off my highest interest debt, or my smallest debt first?
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7 年So why the Banks never do it?