Many people, regardless of their situation, want to make their money work for them. A lot of people are always looking in the long-term and are trying to invest their money for the future in any way possible. Here are some aspects to consider when you are investing capital when you are in debt.
Should You Invest?
This question should be carefully considered when you are thinking about spending anything while you owe money. You want to look at every view point there is in your financial situation.
Do you have the time to invest?
Do you have the resources to invest?
Do you have the money to invest?
Are your finances organized?
Organizing Your Finances
These are all factors to consider before even beginning investing while you are in debt. One of the most important questions to consider is do you have all your finances organized? Don’t even think about trying to invest your money for a profit without knowing where your finances are, especially if you owe money to begin with. Take the time and organize all your finances and make sure that you have separate accounts for your money. Create an account for savings, daily expenses, emergencies, etc. This will help you figure out how much money is needed to pay your bills and any other expenses, and also how much you have to spend or invest. The next thing you want to accomplish is to get your debt in order. Know who you owe money, and exactly how much. Make a detailed plan of action to paying this money back, and then figure out how you can incorporate that plan into your daily spending. You can even create a separate account for this to keep you more organized. After you are aware of exactly how much you have to spend & save, you are ready to invest.
401k and Retirement Plans
A lot of companies will now match half of what you invest in your retirement plan. This is free money, and depending on your situation, shouldn’t be overlooked. Even if you don’t have a lot to throw into this account, it’s definitely a good idea to consider when you are thinking about the future.
Compounding Interest
Compounding interest is a VERY important factor to consider when investing that can make you very large amounts of money, if you know how it works. Take a look at this scenario:
Dan invests from age 20 until age 30. He puts $3,000 per year into an IRA account. Paul starts putting money into an IRA when he is 30, and continues until he is 60. He also puts $3,000 per year into this investment. Paul contributes $90,000 and Dan contributes $30,000. However, at age 60, Paul would have $283,500, and Dan would have $315,500.
This just shows the power of compounding interest, and it does more than you could imagine. This is why you need to start young, no matter what your situation is.
Before you start investing while you are in debt, make sure that you know where your financial situation stands. After knowing how much you owe and how much you are able to invest, start looking at the smartest, as well as safest, strategy to start investing for your future.