Tale of Two Tellers - Part III
We have a decision to make - one you face every single day - whether you realize it or not. If you have more money than month, and you have money left over in your account - there are three things you can do:
Spend - the $500 on lifestyle today. Save - the $500 for their lifestyle tomorrow. Repay - the $500 toward an existing debt.
If you have more month than money, and you don't have enough money left over in your account - there is really one thing you can do:
Borrow - the $500 from your lifestyle tomorrow.
Now we're back to EPR as a tool. You have $500 left in your account. You have three debts:
Auto Loan is 3.65%
Mortgage Loan at 5.25%
Credit Card Loan at 16.5%
If you spend the $500, you enjoy whatever the $500 brings to you today.
If you save the $500, you enjoy whatever the $500 brings to you in your future.
If you repay the $500, you earn the interest rate you would have paid on that debt.
Let's say you are ok not spending the money, today. That's the first step in wealth development - realizing you have a future self that you care about as much as your current self. If you like being secure financially it always starts now.
If there is money left over, you start by considering the safety, liquidity and return on the (location, location, location) of where you could locate that money?
Save in a checking account: Safety (guaranteed), Liquidity (high), Return (low - <1%)
Save in an investment account: Safety (variable), Liquidity (variable), Return (variable)
Repay an existing debt: Safety (guaranteed), Liquidity (variable), Return 3.65% - 16.5%)
It Depends is the answer to most financial questions as there are many variables, but each month we are faced with this same question.
Learning how to answer it each month is the foundation of a health financial life as everything compounds over time.
In our next post we'll look at the financial impact of these decisions over time.
TIP: Most financial decisions are not about picking the right investment, but creating the right mindset - one that allows you to start early, keep it simple, and stay consistent over time. The Teller always wins because they bank has always been in the game, they make it simple for you to deposit and harder to withdraw, and they consistently earn their spread as long as you play their game.
Also - this is all leading to the most important decision for most of us, and that's the decision to borrow to buy a house - don't worry we'll get there soon!