You can invest in spite of debt. The critical question is whether or not you should.
Debt becomes like a limbo state where things seem to be happening in slow motion.
Knowing that the sun will come up and being able to see the dawn are two very different things. For some people, building an investment while in debt provides a much-needed ray of light.
To give to you a clear view as to how and why should you look towards investing options, the article has been divided into certain points. As you read, you will get an outlook towards your ability and comfort when it comes to investing.
WHAT’S YOUR PERSONALITY?
In simple words, identify your comfort level when it comes to keeping your pocket safe.
When it comes to handling your finances, what kind of a person do you turn to take? What is your general idea, your ability to focus on your thoughts and goals in life?
There might be some who feel it be obligatory to pay off their debts before start investing. On the other hand, there might be some who would prefer investing once they have controllable obligations.
Another thing you must think about is how capable you feel yourself to be when it comes to taking risks. Investments are a lot about taking risks. You need to sense your capability of affording the level of risk within your boundaries. Based on this, there are two kinds of people — one with high-risk tolerance and the other with low-risk understanding.
You need to do the metrics and take a look at your pocket before you involve yourself in taking any kinds of risks.
In general opinion, first take time to learn about your investing options, keeping track of and categorizing your debt, and just taking the time to learn about yourself and your feelings towards spending money.
Understanding how you feel about money is key to learning how and when should you invest, the types of investments you should make, and furthermore what you want your finances to look like.
IDENTIFY YOUR DEBT
Firstly, let’s talk about high-interest debt.
Let’s be clear here… investing with a high-interest debt is tough.
If you have a high interest debt, and yet you wish to invest, you have two options:
- Make your investments small-scale. What I mean here is, the investments you’re trying to make should be smart and capable of fulfilling your short-term goals. These investments would not be able to give satisfactory returns but at least be capable of performing your small needs that occur time-to-time.’
- The other option you have is to invest only if you’re getting a higher return on your investments than the interests on your debt. Simple as that.
Talking about low-interest debts, if you can find an investment that grows at a higher percentage than your debt, it would be helpful to continue making your regular debt payments, while investing in high-return opportunities. In the beginning, it can be from peer-to-peer lending, through purchasing a rental property, or maybe even buying cryptocurrency.
Also, you must take note of the fact that it is good to start investing as early as you can to enjoy its benefits. However, you want to make sure your other debt in control, you’re building enough money to begin investing, and you do your research on what investments make you feel the most comfortable.
CREATE A PLAN TO INVEST
The primary aim here is to make our loan payments in the place of low risk/fixed return investments. Simple.
This means that you will see “returns” from the point of lessening of your debt load and interest payments.
It is okay to take risks sometimes. This is where investments hold the good of you.
As I had talked earlier above that, you need to realize your limits to where you can afford taking a risk. Even if you have a high-risk tolerance, you, may not be able to put as much as you’d like into your investment because, unlike bonds, loans require a certain amount in monthly payments. Your debt load may force you to create a conservative investment with most of your money being “invested” in your loans and only a little going into your high-risk and return investments.
As the debt gets smaller you can adjust your distributions accordingly.
NOW, SHOULD YOU REALLY INVEST IF YOU HAVE LOANS TO PAY?
The answer to this question is very personalized to your financial situation and risk tolerance. There are indeed benefits from getting your money into the market as soon as possible, but there is also no guarantee that your investment will perform as expected. These things depend on your investing strategy and market timing.