There are many things we people want to be able to afford, which may be a little extra obvious ahead of Christmas when there is so much you want under the Christmas tree and on the Christmas table, etc.
However, how you choose to get the things you want can vary. Two common alternatives, which are also the opposite of each other, are loans and savings.
Many people choose to either take out a loan or trade on credit
To finance their purchases. In some cases, it is quite logical to split the payment over a longer period and postpone it a little in the future, for example when you buy something that is more expensive such as a car or a home.
However, doing the same thing with spirit things such as a trip, TV set or Christmas presents is often not the best option.
Every time you borrow money to buy something or if you buy in installment, you can expect that the thing you buy becomes a lot more expensive overall than if you had bought it in cash with your own money. This is because you have to put interest and other fees on top of the regular price of the product. The longer you take to repay the money, the more expensive it becomes overall.
Put the money away in advance or afterwards
If you buy something and choose to pay for it in a year, it means you have to expect to have one-twelfth of the purchase price, plus interest and fees, ready each month in addition to everything else you pay in bills, etc. You must budget for that cost over the next twelve months and know that you can afford it.
If you think that you had instead chosen to finance your purchase in another way – in other words by saving – you would have basically had a similar plan, only that you had instead spent this money the year before you bought the thing instead of the year after. The idea is that one year in advance you would have thought that if I save that and so much money for twelve months, I can afford what I want to buy.
You who save the money in advance do not have to pay interest and fees which makes what you buy more expensive. You can even get some return on your saved money in the form of interest on a savings account or how you have now chosen to save them. So you can go a little plus instead of walking very minus.
Make money from your savings pot
If you are a little more daring, you can also invest your savings in something with a little more risk, such as funds or shares. Here it is always a trade-off, because such an investment also involves a certain risk of losing some money, and it is quite a bit if you have a plan to save for something specific and the savings pot becomes smaller rather than larger. At the same time, it can also (which is the hope) be so good that you make money on your investment and then you can reach your goal a little faster.
If you know a little about equities and funds (or other types of investment) then it is of course something you can test instead of just having the money lying in an account. You can manage your business at a bank or online broker, which is often smooth.