If you have € 1000 on a credit card at 18% interest, the interest cost you 180 €. If you save € 1000 in a savings account with a 4% interest after taxes, you earn € 40 in interest. If you pay 1000 € to you with your savings you save 140 € per year.

It’s that simple, debts usually cost more than you earn on savings, so it is best to cancel debts to save.

When you save, you do really is to pay your money to the bank for use and lend it to other people. The difference between the fare you paid to you by letting the money to the bank (savings rate) and the rate it charges other people by loaning them money (the loan rate) is your profit. Therefore always costs more to borrow money to be earned saving.
Exceptions

This is based on the fact that the cost of debt is generally much higher than what you earn from savings, so that your finances get much better is you get rid of your debt if you start saving.

The exceptions are the few occasions when the debts are cheaper than the savings, or cost of pay is very high:

The exception to the penalty: If paying your debts is a penalty, as can happen with some mortgages or loans, then you better save and put your money in a savings account until the penalty is small enough not to import .

The plea of no interest or very low interest rates: This concept is entirely based on the fact that debts cost more than they earn on savings, but if you do not have interest in your debt, you must follow the opposite logic. If the interest rate on your debt is less than you make with your savings after tax, provided you’re disciplined, you better save and not paying your bills with that money.
Is it worth it to have money saved for emergencies?

For a person who has no debts or to pay for penalties, the most advisable would be to have money saved for emergencies, but for anyone with large debts, particularly credit cards, not worth it.

Example: If Laura has 5000 € saved, earning a 4% interest after taxes, for emergencies, and should also € 5,000 on credit cards. While your savings will rent 200 € per year, your debts will cost 900 €, so it actually pays € 700 per year. If you pay your debts with the money saved, or earn money from savings or pay interest, which would save € 700 per year.

This is advisable if you can get money in an emergency. Generally if you have credit cards you can get the money, but if you’re going to pay a personal loan and have no other means of raising money in an emergency, you have to consider.

We have seen in other items such as planning or reduce debt payments. But always talked big all suffer payments: mortgage, car, light, water, telephones … But one factor which few pay attention and can lead to a change in our financial situation: small expenses.

Every day we spend money on things not essential to maintain our standard of living. For example, we had coffee in the cafeteria, smoke, buy gum, constantly call for the mobile media buy, we buy bottled water, etc..

The expense of such small quantities can in principle be avoided: we can have coffee at home, quit smoking (and thus win in economics and health), no gum chewing compulsively (only occasionally to refresh the mouth, eg ), call on his cell phone only for important things (not silly), read the news in the digital editions of newspapers, or avoid taking the car up to go to the corner (you can walk or take public transport), we can drink tap water at home or have a filtering system (in the medium term is amortized by far) … All this will save you money.

The problem is that when individual costs so little, do not give them importance. We will see that ultimately, the expenditure is large and that can help pay off other debts more important.
Let’s make an example summary table of average daily expenditure
How Much Do you avoid? (Yes / No)
Coffee 3 € Yes
snuff 3 € Yes
newspaper 1 € Yes
Mobile 1.5 € Yes
gasoline 3 € Yes
water, 0.5 € Yes
another 2 € Yes
Total 14 € Yes

Here It seems that the sums begin to be more important. But we go a little further.
How much money we spend on monthly and annual disposable stuff?

Monthly cost: 14 x 30 = 420 €
Annual: 14 x 365 = 5,110 €

It shows that money spent can be a lot. Even for someone who only drink coffee away from home once a day (1 €) saving of 365 € per year and would have to be taken into account. That is, for example, a letter from one of our loans.

But we go a little further.
Savings we can get by stop spending money on superfluous things

These savings can be redirected to other payments, investments, generating greater savings. For example, if we decide to invest the € 5110 to recoup part of our mortgage, we get a reduction in the time and therefore a lower burden of very substantial interests.

For example, a 20-year mortgage of € 100,000 at 5% interest, at odds of 660 € a month, reduce your time in nearly two years, which means a big saving in interest and tax profit also increased by the increase deductions for house purchases (due to the payment of those extra € 5110).
What if we saved the capital invested by stop spending money on unnecessary things?

If the annual spending on little things we looked much expendable, let’s see what happens if we compare the value of that money in the future.
Term Investment Total Return at the end of term
5110 € 5 years 5% € 6521.80
5110 € 10 years 5% € 8323.65
5110 € 15 years 5% € 10,623.32
5110 € 20 years 5% € 13,558.35
5110 € 40 years 5% € 35,974.34

Recall that Co = C1 / (1 + i) ^ n where:

1. Co = capital value today (what we want to calculate)
2. C1 = value of capital in the future (2143.8 €)
3. R = nominal interest rate (5% = 0.05)
4. n = time (in years 6 months = 0.5 years)

Co = 2143 / (1 + 0.05) ^ 0.5 = 2092 €

Here is what they seem perfectly that small quantities are unimportant, in fact, very large quantities when accumulated over the years.

In the case of investment to 40 years, we can say that if this is a big part of life we have, save those nearly € 36,000 to spend on just leaving things disposable.

* In some cases, even pay less money per month and interest on the loan are lower, if you’re paying the loan over time at the end you will pay more money.
* If you have to put your house or any other possession as collateral to grant you the loan you risk losing them if you can not repay the loan.
* The lower interest rates mean that the lender is risking less money to lend, that is a good chance that you pay them, even staying with your home.
* Some nonprofit agencies that provide loans to consolidate debts can persuade you to let them manage your money.