@Anonymous wrote:
@Anonymous wrote:
I think this is the first time that I've heard of someone wanting to save money by spending more money as opposed to just saving money without spending more money. But hey, taking two steps forward to go three steps back is just how some people roll.
I've been pushing that line for 10+ years and I have been at maximum Facebook friends for 7 years, with somewhere between 1000 and 2000 requests pending that I can't accept. Why? Because literally 100s of people every year come to me for financial advice and the #1 advice I have for everyone is to build savings faster than paying down debt. I haven't changed my tune about it because no one can prove me wrong until they've tried it themselves.
The #1 issue with financial stress is that people have anxiety and even depression not just about their current situation but about the ghost of what might happen tomorrow if they lose their job, or their spouse divorces them, or they end up in the hospital. That anxiety/depression about the future is 10000% worse than the anxiety about the current.
When a person hits 6 months of savings -- no matter how much extra interest it cost them getting there -- almost 90% of them tell me their anxiety completely disappears even if they didn't put a dent in $100,000 of student loans or $60,000 on credit card debt. The flip side is, close to 0% of folks who decided to throw every dollar at debt ends up paying down $100,000 in loans to $90,000 or $60,000 in credit cards to $50,000 and have $0 in savings and their anxiety and depression gets worse because they worked so hard with negligible effect.
6 months of emergency savings makes you realize that no matter what happens, you have 6 months to pay all your bills and debts in case of income emergency. In my research, and I've interviewed thousands of people over the recent years, more than 6/7 people in credit hell or financial purgatory got there because of an income event that lasted less than 6 months. So had they put 6 months away for emergencies, they never would have gotten into the problem they face today.
Most people who follow my 6 month advice like it so much they aim for a year -- even if it costs them $1200 more in interest. Why? Because when you have a year in savings, you can give the finger to your boss, your cheating significant other, or anyone who bothers you. It's F.U. money. It's freedom.
People who are ignorant of human emotions and hormones will go based only on the math, not realizing they're totally unwilling to look at reality.
Me? I retired young thanks to saving more than paying down debt. I blew my FICO scores at one point because I had my emergency fund locked up in investments I couldn't liquidate, so I took the FICO ding just so my investments could grow. I can fix my credit in 7 years at any point, but 7 years of compound interest is MASSIVE. Note that at the time my FICO got smash (2012 or so) I had quite a bit riding in Bitcoin at around $6 each. So I made the right call -- take a massive FICO smash for what was a really risky bet, but it paid of massively and accelerated my retirement by 5 years.
I'm not saying that there's no psychological benefit or that people don't feel better, I'm simply saying that it doesn't make fiscal sense to pay extra money (credit card interest) to do what is basically an attempted shortcut at having financial discipline. It literally only does the exact same thing as saving, but at a higher ultimate cost for the same end result. It works great for short term manufactured spend and for 'good feelings', but now that Americans collectively carry over $1T in credit card debt I find it hard to recommend more debt as the 'solution' for having savings. Ymmv.
