This post was contributed to Leisure Freak by personal finance writer Tanya Singh who  knows this topic of loan payoff vs retirement savings. 

Are you constantly in a battle to decide which one to choose between the two – paying off loans or saving for retirement?

Using money to pay off loans is a good choice. But so is taking a chunk of money from your monthly income and saving it! The former allows you to build returns and generate investments. While the latter saves you money to pay off personal loans, home loans, and budgeting loans.

So which option to choose? Read on to weigh out the advantages and disadvantages of both.

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Consider This Before Prioritising Loan Pay Off or Retirement Savings

Holding any debts is always a bad habit, and if you ask the bunch whether debt paying should be prioritised or retirement savings, the majority will say debt. Whether card repayments, loans, or mortgages, clearing the debt is always a good idea.

Those believing in “pay yourself first” have their own sets of points that work for them. But, depending on your situation, ask yourself the following questions and judge what works the best for you.

• Do You Have Emergency Funds?

Not having emergency savings is an expensive mistake for people of every age. What if your landlord suddenly raises the rent? The economy is never stable, what if you lose your job?

There are several unpredictable situations you can land yourself into. Having money on hand can be a huge relief. You should always have at least three to six months’ worth of salary in your savings account.

Therefore, if you have enough savings, only then consider to repay your loans.

• Do You Have Any Other Debts?

Other than your ongoing loan, consider rethinking whether you have debts like credit cards. Sometimes the interest would be higher on these than the returns you get from investing. By repaying such debts, your finances get a boost.

• Are You Paying Into a Pension?

Pension savings is one of the most important factors to consider when you start working. When you contribute to pension schemes, you benefit from tax relief. There are several workplace schemes available as well where an employer pays in the pension. This is a cost-effective way to retirement savings.

Should You Pay Loan First?

Loan repayment is one of the most painful tasks for any individual every month. Therefore, some people prefer paying it off early. However, is that a smart choice?

 For some, the early payoff is beneficial. But it is a choice that needs to be heavily analysed before making a firm decision. Here are some advantages and disadvantages to consider:

Advantages:

• You can save a lot more on your monthly income, which leaves you with more cash.
• Your overall interest bill is reduced.

Disadvantages:

• The biggest downside of paying off your loan in one go is that you would not have the funds to aid any emergency. If you are thinking of repaying your loan first, consider your current savings in mind.
• You will be faced with several early repayment charges (ERCs), depending on the lender.

Should You Focus on Savings and Investing?

If your future plans are grand, it is only sensible to have financial security by either saving or investing with a sensible strategy. But every coin has two sides.

Savings is great, and so is investing (depending on your needs). However, there are advantages and disadvantages to it. Let us take a look:

Advantages:

• Investing in shares causes your money to grow faster than simply opening a savings account.
• You do not lose your access to cash in case of an emergency.
• The flexibility of selling your investment is available, whether mutual funds or purchased shares.
• Retirement accounts provide tax relief on your contribution. In the end, it boosts your retirement savings.

Disadvantages:

• Investment returns vary on the options you select. Even if the long-term return is good, there are short-term losses you will need to bear.
• You cannot access your retirement funds in your retirement account until you reach your retirement age.

Pay Off Loans or Save for Retirement?

There is nothing wrong with paying a loan before time and maintaining a good credit score. Equally, saving for your retirement is also a good plan! So ultimately, the choice is yours. Take a decision depending on your financial circumstances, priorities, and goals.

Thank you Tanya Singh for sharing this timely topic, prioritising Loan Payoff vs Retirement Savings. With all the challenges we face economically in our day to day, we still must create and implement our best plan for our future selves.

 Author Bio: 

Tanya Singh works as a Content Marketer at LoanTube – a loan comparison marketplace where borrowers can connect with multiple lenders via a convenient and transparent application. She writes about topics related to personal finance and loans helping her readers in making smart decisions when they need to borrow. Yoga brings her inner peace and strength, and travelling brings her joy (besides her work of course).

It is hard to believe that today is the One Year Anniversary for Leisure Freak. The time has really flown by and it has been a great experience. I think back at how I always wanted to learn how to create a web site and how intimidated I was at the prospects of doing so. It isn’t as hard as I thought it would be but boy was I naive about the wide world web and how everything works. I have to admit that it is a lot of work but it must be fun because time blows by without even noticing it.

Today I have 35 static pages and 70 blog posts. I am sure to some that isn’t considered a huge accomplishment for a first year but for me it is huge. My goal was to create a site that explains how I retired young and my awesome passion driven lifestyle and hope that it could be found by someone on the internet where they find useful information for their own journey. I did get off to a slow start after initially signing up to reserve the LesiureFreak.com URL address and loading up the Word Press theme to start learning what needed to be learned.

Blogging.

I initially didn’t plan on having a blog. I was planning on building a static web site because that is what I had wanted to learn how to do. In fact, I really didn’t understand a thing about blogging before starting this site. That is another thing that I have learned about and in doing so also finding out what I had been missing.

There is a wealth of information to be found on blogs and I had just never been introduced to it before starting this journey. Most of my personal searches were to the more institutionalized sites giving the same old and tired traditional content. What I enjoy most about bloggers is they are actually doing what they are writing about for the most part.

Unlike some financial planners who have never retired telling people how to retire early. I have also been blessed by other bloggers reaching out and offering me advice through leaving comments and replying to me. I do really appreciate that.

Site Traffic and Being Found.

It is amazing to think back to the early months how I could Google, Yahoo, or Bing Leisure Freak or my tag line, Retire Early and Often and not be found in the search results. Then one day there I was somewhere around page 10. Now at least when looking for Leisure Freak or Retire Early and Often I can be found on top of page one. I am sure there are those reading this that think big-whoop but like I said I didn’t understand what it takes to be found until after I started this adventure.

As to Leisure Freak’s site traffic, that is another story. Although it is slowly growing it is far from impressive. I really do appreciate my followers and those who happen upon my site and spend some of their time reading what I have written. I plan on writing away and hope that in doing so I will gain a bigger readership someday. If not then I at least have done and learned something that I wanted to do and learn.

Jack-Hole Hackers.

I have learned a lot recently about the Jack-Hole Hackers of this world. I didn’t think a little site like mine would attract so much attention but there for a while it was relentless.

The funny thing is it didn’t happen until after I decided to add Google Adsense to LeisureFreak.com. I knew my traffic was low and the thought of making any money or even hitting the $100 minimum threshold may take months if not years but I was anxious to see how it worked. Soon after activating the ads I noticed frequently repeating Russian and Chinese dating site ads.

I still only had minimal clicks when looking at WP Jetpack Stats but I finally decided to dig deeper into Google Analytics and there I found hundreds of daily clicks from guess where of the world? I added an anti-hack plug-in and I was surprised to see hundreds of daily login attempts to my wp-admin. Good thing I removed the user “Admin” after first setting up my site and my password is over 15 digits long.

Google Disappointment

I found out I could block those dating ads and shortly afterward with only receiving a couple of ad clicks since Adsense activation I was notified that Google deactivated my Adsense account and banned me from ever using it again because they detected invalid activity or activity dangerous to the program. WTF!!!

I have no idea what happened. I didn’t violate the no self-clicking rule so with nothing to go on all I can say is I am done with google. At first I was embarrassed and bummed out about it. Then after researching the issue it seems lots of people get the bump with no explanation and warn there is no sense wasting your time appealing it. I moved from being bummed to being ticked off. I am over it and now over them.

The hacking activity lasted about another 3 weeks after that and has since stopped. Is it a coincidence that all of that started with adding Adsense? Maybe some of you can comment on that for me.

Looking Forward.

I have added 5 new static pages over the past week. I plan on concentrating on building the static site I always wanted to do. I also want to blog one to two pages a week. I do find it difficult to do while I am on my current early retirement side hustle but I will do my best.

Thanks to my Readers.

Again I want to thank my followers and readers of the Leisure Freak site. And as always, I do appreciate all who care to leave comments. Thank you all for making my One Year Anniversary for Leisure Freak the great experience and adventure it has been.

Leisure Freak Tommy

Earlier this week I was the recipient of a Liebster Award Nomination by Wallet Engineer.  Thank you for nominating Leisure Freak.

I of course googled “The Liebster Award” to find out more about it. It is given to bloggers by bloggers to learn more about them and their blog and to also introduce themselves to the blogging world. If you’re nominated for the Liebster Award you are supposed to create a new post for your site, import the Liebster Award medallion and list who nominated you with a backlink to their site and answer the questions given to you from the nominator. Then the nominee blog nominates five other bloggers for the Liebster Award and gives them five questions of their own. You can google Liebster Award rules for more info but it’s fairly informal and has apparently changed a little over the years as there are slight differences found in definitions and rules.

I do accept the Liebster Award Nomination and award from Wallet Engineer and I thank you. It took me a few days to announce my acceptance of the award, not because of answering the questions Wallet Engineers gave me but because I wanted to go on a Liebster Award nominee search and find 5 blogs that I have never seen or read before so that I could expand who I follow and then come up with my own five new questions for my nominees. I reviewed many sites but landed on five that had something I found interesting and new to me, different areas of North America or a different way of looking at things. All slightly varied just as my interests are and they are listed along with their nominee questions below my answer to Wallet Engineer’s questions to me.

Questions for the nominee (Leisure Freak):

1) When and why did you decide to retire early/become financially independent?

I was 40, a husband and father of 3 teens. We had lived a fairly frugal life and were well on our way to being debt free other than our mortgage. I was 20 years into a telecommunication career and at that time just made lead engineer. I was looking forward to a lifestyle with less stress and decided early retirement was exactly what I wanted to go for. We drew up a 10 year plan with the aid of a financial advisor and executed it. It didn’t all go as planned and there were some devastating setbacks both personally and financially but the stage was set and the plan was sound enough to retire early. I do love this freedom.

2) Did your parent/guardian teach you, directly or indirectly, about the value of money, keep finances, balancing a checkbook, etc. ?

Not directly but just by the life we had. I grew up lower-income and until I started working never had money. My father worked 2 full-time jobs and my mom was the housewife of old. There was never extra money but we had a modest home and never went without meals. If something broke you had to learn how to fix it or go without. My father hated debt and I guess I inherited that from him. I think that never having money and seeing others who did is why I had an early savings habit and would not spend money foolishly. I was a cash only guy until I was a senior in high school when I got a part-time job working for a bank’s operations center. I micro-filmed all the checks being deposited that had come in from all the branches. As part of that job I was given a checking account and credit card and it was a condition of employment that you never went into overdraft, never exceeded your credit limit, or missed credit card payments. Jobs were very hard to come by so I learned financial discipline and responsibility out of necessity.

3) Can one become financially independent regardless of any external factor (health, education, social class you were born into, etc.)

Yes, I think anyone can with the right financial discipline and a strategic plan, but of course they must have the opportunity to be able to work at something to get anywhere. If all doors are closed because they get in their own way or society does, had a limiting disability, or a never-ending rotten job market, etc., without a way to make money you have no chance. However if you can work and earn enough to support yourself then you should be able to find ways to live below your means. If your means are not enough then do whatever you need to improve that. That said, coming from a lower-income family and not having a degree I did have obstacles. I started my telecom career at the bottom and not having that degree did hold me back but I was able to work my way up over a 15 year span leveraging my capabilities and energy, taking any classes offered by the company or night school. Coming from a low-income background gave me frugality and a saving habit but also a scrappy attitude. When I was told no or that something was impossible that I really believed in it I would go for it anyway. However it took years to get through the system of “no” so I needed a lot of patience. I always knew the more you can earn over your lifestyle costs the more you can save so I was driven to make it happen. If I could do it anyone should be able to do it but it does take having patience and long-term vision.

4) What is your proudest moment?

I have many. The birth of my children, buying my first home, being promoted to Lead Engineer, the day I realized there is more to life than being a career-driven wage-slave and decided to retire early to a lifestyle with a passion-driven mindset.

5) If you could go back and make changes to your current financial path, what would you do?

I was saving a pretty decent percentage of my income while eliminating all debt and paying our way through everything associated with raising a family but I wish I would have invested more aggressively in my 20s and 30s than I did. My 401K had limited investment options for most of that time back then but I did delay investment changes and didn’t pull the trigger in that regard. I didn’t embrace the risk and reward of stock investing until I was 40 after guidance from a financial advisor on my desire to retire early while I was still young enough to enjoy it.

Nominees:

Tawcan, Quest for joyful life & financial independence

Encuruj, Encouragement is Personal

No Pension will Travel, Our journey to “Free at 55” – traveling the planet without it costing the world.

Kathy’s Retirement Blog, Retirement is a journey, not a destination

Healthful Saver, The Quest for Healthy Savings and a Healthy Lifestyle

Questions for the nominees:

1. What made you decide to start blogging and expanding on your tag line, what is your primary message you want your blog to give to its readers?

2. I am a car-freak and crazy about road trips. What memorable road trip have you taken in your life, why is it memorable, and if you may, what kind of automobile did you take it in?

3. I believe that a person’s character and kindness is a better way to decide if you would want to know and be around them than the amount of money they have or don’t have. What 2 characteristics do you value when deciding to get to know someone new?

4. If money was not considered or what your education was in and you could have chosen a career or way to make a living that you are passionate about, what would you have been or done as opposed to what you did do for most of your working years?

5. I nominated your blog because I saw something that said you aren’t stuck in a rut and you live a full and freedom seeking life. I always say that life should be and is an adventure. Unfortunately some people never see that. What is it that makes you see life differently than the everyday Joe or Jane stuck in a rut?