 |
| Saving Money...Maybe you should think of it as Rescuing Your Money! |
This week I am going to cover saving money. There are many
differing thoughts about this topic these days, some of which have valid
points. I will also lay out my thoughts on the idea.
Saving Money – Why Should You?
Why should you save money? You can save money for an
emergency. You can save money for to buy something special. You can save money
for a dream vacation. You can save money for retirement. Your reasons are valid
for you.
Tim Ferriss advises that you set dreamlines…goals you want to
achieve and figure out how much it will cost, both per month and one-time
charges, so you can figure out how to get your retirement now rather than
delaying and saving for “one day”. There is also this whole part about coming
up with a muse, or business idea that will provide the extra income to
cover the costs of achieving that mini-retirement. The other thing is that they
should be frequent.
Robert Kiyosaki says “Savers are Losers!”. His reasoning is
that no matter how you are saving money, be it in a bank, in a Certificate of Deposit
(CD), or in a pickle jar buried in the back yard, you are losing money, at
least at this point in time, because of monetary inflation.
“MonetaryInflation is an increase in the money supply which generally results in priceinflation. This acts as a “hidden tax”on the consumers in that country and is the primary cause of price inflation.Monetary inflation is commonly referred to as the government “printingmoney” although the actual process is a bit more complex than just cranking upthe printing presses but the effects are essentially the same.As the money supply increases the currency loses its purchasing powerand the price of goods and services increases.”
Why under the mattress, In a savings account, or In a Certificate of Deposit Costs You Money
Currently the rate of inflation is approximately 2%. Based
on the definition above, that means that your money loses 2% of its purchasing
power. If your savings account is paying 0.25% interest rate, your money in
that account is losing 1.75% with this rate of inflation. If your CD is paying
0.3%, you are losing 1.7%. And if you have it in a pickle jar, you are losing the
full 2.0% of purchasing power by not doing anything with it.
Ultimately, as far as I am concerned, instead of just saving
money, put your money to work in an investment that will earn you more than the
rate of inflation. Historically, the S&P 500 has provided positive returns over
the long term, but in some years, like 2008, it had a negative 37% yield.
Overall, accounting for inflation, the market seems to
average about a 7% return, but you will be advised to leave your money in the
market and let things work themselves out. We have money in the market in the
form of traditional & Roth IRAs, regular managed investments, my 401k, and
various individual stocks that I play with (not very much).
I, personally, don’t want to devote my time to attempt to
master the market.
Why you should make your money work for you
We also are investing in real estate. So far, those
investments are working out to about a 9% return. Real estate has many options
from flipping, to buy and hold (rentals), to lending, to investing in notes
(becoming the mortgage holder for other borrowers). As stated before, BiggerPockets is the best free education on real estate investing you can find.
Additionally, we invested in a high-end door manufacturing
business. It is not currently providing a return on investment, but it is
improving and still self-sustaining, in addition to providing me and my fellow
investors with some of the best business management lessons we have ever run
across.
The bottom line, make your money work. To paraphrase the old
adage, if your money is not moving forward, it’s falling behind.
And, as always, let me know what you think in the comments.
Ask questions, tell your story.
If you like my posts, please share them with others and
subscribe to this blog.
No comments:
Post a Comment