That was sort of the gist of a comment I got on a post. I have often mentioned that saving money while having debt doesn’t help you get ahead.
In the Dirty 90’s, borrowing money to make money was all the rage. However, eventually, you have to pay for what you borrowed (one way or another). Investments with a return above 7% per annum are profitable according to current interest rates. This assumes you can get a preferred lender rate of 5.5% or so), and yes that might work (NO!!!). I am not recommending it, I am simply pointing out that it might work. Then again, Lenin thought Communism would work too. However, when the rate of interest on your borrowed money goes up, what happens then?
“If I borrow money at a prime + 1% interest rate and invest in the Big Cajun Man Guaranteed Index Fund (BCMGIF), which is not available in any market around the world, I could earn an average of Prime + 3% every year. This means I would earn a profit of 2% annually without doing anything and without using my own money. Assuming I invest my money in BCMGIF instead of paying off my debts, I’d make Prime + 3%?
What if I borrowed that money on my Secured Line of Credit, but interest rates start to jump a little and now I am paying 7.25 % on the money? In a short period I am now losing 0.50% a year, aren’t I? BCMGIF might rebound and make more money, or in the unlikely event that it only pays 5.1%, I would lose 0.4% annually.
If you have negative money flow due to debt, saving money will not increase your value.You are simply creating a weird bubble of Debt and Savings. My guess is your savings bubble will burst long before your Debt bubble ever does.
I think you have to do both! If you are not saving and investing, you missing out on time. Invest, however small and time will help you grow your investment.