There are many things we people want to be able to afford, which may be a little extra obvious ahead of Christmas when there is so much you want under the Christmas tree and on the Christmas table, etc. However, how you choose to get the things you want can vary. Two common alternatives, which are also the opposite of each other, are loans and savings.
Many people choose to either take out a loan or trade on credit
In some cases, it is quite logical that you split the payment over a longer period and postpone it a little in the future, for example when you buy something that is more expensive such as a car or a home. However, doing the same thing with spirit things such as a trip, TV set or Christmas presents is often not the best option.
Every time you borrow money to buy something or if you buy in installment, you can expect that the thing you buy becomes a lot more expensive overall than if you had bought it in cash with your own money. This is because you have to put interest and other fees on top of the regular price of the product. The longer you take to repay the money, the more expensive it becomes overall.
Put the money away in advance or afterwards
If you buy something and choose to pay for it in a year, it means you have to expect to have one-twelfth of the purchase price, plus interest and fees, ready each month in addition to everything else you pay in bills, etc. You must budget for that cost over the next twelve months and know that you can afford it.
If you think that you had instead chosen to finance your purchase in another way – in other words by saving – you would have basically had a similar plan, only that you had instead spent this money the year before you bought the thing instead of the year after. The idea is that one year in advance you would have thought that if I save that and so much money for twelve months, I can afford what I want to buy.
You would then have spent some each month (roughly the same way you would have paid off your debt if you had purchased the item on credit) in a savings account or similar. The difference between saving in advance and paying on a credit in advance is that you do not have to pay interest and fees if you save the money together. There is quite a lot of money that you can save in that way.
You who save the money in advance do not have to pay interest and fees which makes what you buy more expensive. You can even get some return on your saved money in the form of interest on a savings account or how you have now chosen to save them. So you can go a little plus instead of walking very minus.
Make money from your savings pot
If you are a little more daring, you can also invest your savings in something with a little more risk, such as funds or shares. Here it is always a trade-off, because such an investment also involves a certain risk of losing some money, and it is quite a bit if you have a plan to save for something specific and the savings pot becomes smaller rather than larger. At the same time, it can also (which is the hope) be so good that you make money on your investment and then you can reach your goal a little faster.
If you know a little about equities and funds (or other types of investment) then it is of course something you can test instead of just having the money lying in an account. You can manage your business at a bank or online broker, which is often smooth. For example, you can try IG Markets and shop on your mobile through their app. Of course, when it comes to investments of this kind, one has to be careful and not everyone fits. However, you can always choose the option that suits you best, whether it is speculating in commodities, buying some stable funds or whether it’s putting the money in a savings account without risk.
The saving method requires planning and structure
If you only set up the alternatives in this way, it is quite obvious that it is better to save money in advance to buy what you want instead of borrowing money or shopping for credit and paying it off in advance. However, it may not be that simple. You have to plan more clearly if you are going to save for something, considering that you need to have come to know that you should buy these things long enough in advance that you can start saving and afford the purchase price.
It may not always be easy to have such a good look and plan what you want or need to buy today. Of course, it may be that something breaks, such as a refrigerator or freezer, and that you have to buy a new one at short notice. Then it is not easy to save for it for six months or a year, given that it is quite important to have a functioning refrigerator. In such cases it is good to have a buffer with some saved money to be used for emergencies and situations where you need money urgently or in case you lose income etc.
At the same time, there are also many things that can be saved. If you are looking to buy a new TV but do not have enough money in your account, you have options. You can either choose to borrow / buy the TV on installment or simply wait to buy it until you have saved the money. Sure, it’s a little more boring to have to wait six months or a year to get your new TV, if you choose saving as an alternative, but as it is said, it becomes cheaper and it is also a clearly safer alternative purely financially.
Christmas stands at the door now and many people borrow money or buy Christmas presents, etc. on credit, but Christmas is really a very good example of something that you can save for instead. You know it’s Christmas next year again and that you will have to buy Christmas presents, food and other things even then. Whatever it is for Christmas presents, you will have the use of money that you save during the year and put away for the Christmas trade.
If you could save money throughout the year so you could afford all the Christmas presents and other things you want, it is a great alternative to financing Christmas through loans and credits. If you were to spend exactly the same amount of money on Christmas presents and the entire choir, though, took out loans or traded on installments instead of saving money, it would cost a lot more. It would probably be possible to save thousands.
Credit always involves risk to your finances
Saving money also means a much greater level of security for you and your finances. A loan is always a certain risk because you need to know that you can pay it off every month in the future. If you are unable to pay, then there will be a rapid interest rate, delay fees and other things that make it even more expensive and even more difficult to afford.
If you have had a bit of money and difficult to pay from the beginning, the risk is that it will be even more difficult and that it will be a kind of snowball effect where a missed payment leads to even more problems with the next payment, etc. There is always a risk of borrowing money, because even if you have a good financial right now, things can change. Income can decrease and unexpected expenses of other kinds can show up and ruin your plan.
If you choose to save money in advance for what you want to buy, you do not have that risk. You cannot spend more money than you actually have in the account and if you cannot afford yet you may continue to save another month until you have all the wages you need.
You can handle changes in your financial situation in a much better way
Should you lose income while saving, you can only reduce the amount you spend or skip spending a month. You may have to wait an extra month before you can buy what you want, but that is life sometimes.
You can make a payment to your savings when you want, but you cannot skip a payment on your loan in the same way. The lender expects you to pay each month without interruption. Should one skip a payment, it may require extra fees and it is a rather tedious situation to be in.
In summary, you might say that it is a clear safer, safer and more responsible alternative to save for what you want in advance. It requires planning a bit and the downside is that you have to wait longer before you can buy the thing you want. Buying on credit is a greater risk and involves a greater cost. You may get your stuff right, but is it worth the extra risk and the extra costs? While it may sometimes be perfectly ok to buy something on credit, you should at least always ask yourself that question before making the decision.