Which Is More Important, Investing or Paying off Debt?

Paying off debt is an obligation for everyone. The interest on the loan can accumulate more if not paid. As a result, you are in debt and gradually bankrupt. Unpaid debt can be a very scary thing. Therefore, paying off debt is one of the priorities in managing finances.

But there is another thing that is not less important in regulating cashflow or monthly cash flow, that is an investment. Everyone has their own financial goals. Starting from buying a private vehicle, buying a house, to plan the old day's funds. If you just rely on monthly income to achieve all these financial goals then you will be difficult. That's why you need to invest.

Do you think maybe investment will work? Often not. Humans are insatiable beings. As long as money still exists, the desired item will most likely be purchased. If so chances are there is very little money left. Then no funds are invested every month. Even if there is, the amount is not optimal.

The problem is simple, many people can not see far ahead. What's in front of the day's eyes, that's what needs to be done. Once there is a need and desire today, only today is the thought. Without thinking next year, next 5 years to 10 years into the future

In fact, the money invested will be used to spend your needs and desires, right? It's just that money is not used now but in the future. You invest to meet your financial goals, which is the goal of your choice. If you already understand the concept of the use of investment, certainly not difficult to run it every month.

Now, another problem arises when it will invest. Have you ever asked this:

"I still have a debt to pay off, which one should I prioritize? Pay off the debt or invest? "

This question is complicated enough to answer. Why I say is quite complicated? Everyone has their own background and priority of life. In personal finance planning, the name alone is personal, we can not generalize to the needs of everyone. Everyone also has different plans. For example, just like the concept of choosing investment products. There is no best investment, there are only investment products that best suit the needs and choices of the person.

So is a person's perspective on debt and investment. There are people who think of debt as a frightening thing and should really be avoided. There are also people who consider debt is a daily diet. Some people think of investment as a routine, and some assume investment is just a fraud.

But regardless of your outlook on debt and investment, there are two important things to keep in mind:



# 1 Debt is a Payable Obligation

This fact is not negotiable. If you have decided to take on debt, whatever the reason you have to keep paying off the debt. Even if you die, debt should still be paid. Either by using life insurance, or charged to the family. This is a bitter truth about debt. Behind the 'sweet promise' in front of you, because you can receive money without having to wait long, there is a payment commitment to be brought to death even (if not paid).

# 2 Investment = Meet the Needs and Desires in the Future

Everyone will want to earn more money. Especially if the benefits can be obtained without having to work, but money and assets that work for you. To get such profits you have to invest. But in the process, have you ever thought like this:

"Too bad if I use this money to invest, I'd better use it to buy bags, shoes, and new clothes"

This thinking is actually very ambiguous but in fact, so many people who think like that about investment. The money you spend on investing today is basically not lost. Not exchanged for consumer goods that will probably only accumulate in your room and just depreciate.

The money spent on investing will be used to meet your needs and wants in the future. If so, what's the difference between spending that now or later? Of course different. If money is invested first, over time you can buy bigger items. These items are usually basic needs that must be owned to support your life later.

If money is spent now, not necessarily later you can afford to buy these basic necessities to support life in the future. Instead, you may be stuck with excessively consumptive desires.



Which Must Be Prioritized?

Now you understand the importance of responsibility for debt and the importance of investing. Let's get back to the original question. Which should be prioritized between paying off debt and investment? In the concept of financial planning, we recommend the following five financial priority pyramids:

The first foundation in financial planning is improving cash flow and having emergency funds. This includes paying off debts to improve cash flow. While investment lies in the third layer that is to meet financial goals.

In theory, you are not advised to invest if you still have excess debt. But investors should be familiarized as early as possible. If you have to cut back on spending because you have to pay the mortgage, you can allocate even small funds to invest. Currently, there are many investments that can start with a capital of $100. such as mutual funds.

If you already have a debt that is too big, you have to commit to paying off the debt first. Because if the debt continues to be stacked, over time the interest will be greater. For example in the case of credit card bills.

In the credit card, there is an option to pay the minimum bill. For some people who do not understand the importance of paying off debt on time, this choice is tempting. Paying the bill's minimum feels like a 'way out' of the piling up debt. In fact, he was choosing a more horrible path that is by piling up debt with flowers such as 3% per month. Remember, per month, not per year. This means that credit card interest per year can reach 36%.

Unpaid bills will flower and continue to bloom in the next month. Added to a new bill that does not solve the problem. In the end, when it can not afford to pay, the solution is to beg the bank to the credit interest bleached. If you have this, the bank is blamed if you do not want to provide relief. Though the debt is the customer's own fault.

If it is already in this stage, inevitably you have to pay off the debt first. You can not think of the future if today's problem is not finished yet. But in the process, do not you add to the burden of debt because it feels no other needs.

Even if you do not invest at this time, that does not mean the need to invest lost just like that. Life goes on, as you get older your responsibilities increase. Do not relax first when it has managed to settle the debt little by little. Immediately allocate funds available to invest. Make investments an obligation you should prioritize before deciding to take on other debts in the future.

For example, when having excessive funds from monthly income, immediately cut the excess funds to invest. Do not immediately think of taking certain installments. Most people do not think of investment as a compulsory budget. Instead, investment is considered negotiable or even eliminated. If you can prioritize investments, you will be able to limit debt that is often not wise.