Debt vs savings

Have you ever heard the word ‘Co-holding?  The term Co-holding’ is defined by Economists as simultaneously holding both Debt and sufficient liquid assets (E.g. cash). Holding both Savings and Debt can be costly because the interest earned on savings is often lower than the interest charged on borrowed funds.

Co-holders may deliberately save where the savings is targeted towards a project or held as precautionary/emergency funds. Some people also choose to have debts and yet keep savings account for psychological reasons – i.e. the good feeling of owning the funds in savings.

However, to GROW YOUR WEALTH, ensure a reasonable balance between your debts and the precautionary savings you want to hold. Ensure you are not unduly exposed to high interest expenses while earning lower on savings.

If you have access to overdrafts, credit cards and loans, PAUSE and establish your indebtedness. Check the cost to you of these debts and compare this to interest income expected from your savings.

Unfortunately, some people just glide by daily without knowing their true debt level. They keep taking available credit card offers from various merchants until they get lost in the vicious circle of debts. The first step towards getting out of debts is to PAUSE and ESTABLISH exactly what you owe.

Cost of borrowing funds (interest expense) is usually higher than interest rate on savings. It is advisable to pay your debts, eliminate the interest expense and thereafter build up your savings.

When reviewing your debts, determine to pay off the debt with the highest interest charges first. Do not yield to temptations to pay off the smallest debts. The smallest debt may be the cheapest. The cost of the debt should guide you on which to pay off first.

Review your financial position TODAY and get help to efficiently manage your indebtedness.

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  1. This has helped me
    . I tend to want to hold cash in savings accounts that pay little or no interest but now I have ensured that my funds earn me interest

  2. Hello CC,

    Indeed you must ensure your money ‘earns’ and ‘works’ well for you.
    Ps note the issue of not holding savings at low interest while being exposed to loans/debts at a higher expense.

  3. How I wish ma that it is possible in our world today to be totally free from debt and just focus on savings and investing what is saved.
    By and large ma every point is noted.
    Thanks for the wisdom.

  4. This is highly educative. I learnt a lot from it. I’m made to realize that you don’t get out of debt by holding cash at hand. Instead, you get out of debt by taking note and tracking your debt so it doesn’t become bigger than your income. Thanks for the lesson

  5. As individuals, it’s important you avoid high interest debts especially if it’s not for the purpose of investment or doing business. Individuals who desire to build wealth should strive not to be entangled in unnecessary debts. They should pay their own debts first especially the ones with high interests, thereafter, they can focus on building their savings or other forms of investment portfolios.

  6. This is wonderful.

    Debt Vs Savings

    1. I’ve learnt that before wealth can be acquired, there must be an equilibrium between debts and savings. Knowing what debt one has can help one know where to start from.

    2. Also, because interest expenses is always higher than interest rate of savings, it is important to pay debts (don’t accumulate debt) and then build up the savings after eliminating debts.

    3. However, I’ve also learnt that, in eliminating debts, it’s important to start from the debt with the highest interest charges first.

    • It is essential to keep a good balance between loans and savings. Note that not all loans are bad. You just have to ensure you are borrowing for what will add value. Keep reading this blog and ps don’t hesitate to share your experience with other people in the FinanceCoachBK community.


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