7.1.8 Saving, investing and debt

If you're not spending all your money, you're saving. That's a good start. In fact, experts recommend saving 10 percent of your take-home pay if you can. If you can save 15 percent, you'll quickly get much further ahead. If you can't save that much, set a realistic target and work to reach it.

But it's what you do with the money you save that takes careful thought. You could invest your savings. Before you invest, though, consider if you should pay off any outstanding debts first. That's because the interest you pay on debts will likely be more than you can earn with common investments.

In most cases, you will be better off if you pay down your high cost debts first, then use your money for investing. But it does depend on various factors, such as the interest rate, the rate of return and the tax rate.

To see how much an investment must make before it has the same value as paying down a debt, try this calculator.

Should I pay down debt or invest?

Use this calculator to compare the results after 12 months if you use your money to invest or to pay off debts.

Items Values
If you pay down credit card or other debt: If you invest:
Interest charges saved over 12 months $0.00 Minimum monthly payments on debt $3.00
    Amount remaining to invest $0.00
Return on investments $0.00
Income tax due on investments $0.00
Net income after 12 months: Saving of $0.00 Net income after 12 months $0.00
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