When is it right to borrow and right to put money into savings accounts?

Friday April 18, 2008

It can often be difficult to decide whether you should dedicate all your funds to a debt or else build up some cash in a high interest savings account. This will often depend on both your circumstances as well as those of the economy.

The high interest rate in Australia at the moment makes savings accounts very tempting as a means of continuing to gain returns on your spare cash while the economy is shifting. However, if you have major assets that you possess due to a large loan, you may need to carefully consider how to act.

Ask yourself whether the asset is necessary, or a wealth generating investment. Property can act as both of these, but decide which is the primary purpose to ascertain whether you should consider selling it to reduce your debt for the moment. A house that you live in is necessary and putting all your spare income into it should result in faster loan repayment and hopefully less paid in interest and fees. An investment property, however, will be a trickier proposition. You will need to analyse the market to see whether you may be risking too much at this point in time.

If you are free of major assets, then it is probably best to save right now rather than taking out credit for an investment. The high interest rate should make the money in your savings accounts grow at a very decent rate at least for the near to mid future, and it will put you in an excellent position to invest at the start of the next big growth period.

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