Making Your Money Work For You: Part 1
I spend most of my time telling you about all the coupons, samples and deals that I find with the hopes of being able to save your family money. This is only part of the process to help increase wealth.
As a former banker I have always loved helping people make money. Even though I worked with corporations investing in alternative investments and not individual investors like you and me, I still like sharing my knowledge with my friends and family.
I am going to start with basic topics and I will eventually get into deeper issues. This week I am going to cover the importance of savings accounts.
After talking to a group of friends a few years ago I was in shock that over half of them didn’t have a savings account. A savings account is one of the easiest ways to earn a little extra income just by letting your money sit there. Even with interest rates at starving levels of about 1% you can still make a little extra cash each year. Two years ago online banks such as ING Direct or E-Trade had interest rates close to 4%. If you have $10,000 to place in savings that is an extra $400 each year that you can use for a vacation or that new countertop you have been wanting to put in your kitchen.
One of the rules I have for myself is that I never keep more than $2,000 in my checking account at one time. My checking account earns me 0% interest so why keep more than I have to in it. I place the rest in an ING online account that is linked to my checking account. This way I can easily move money around to different investment accounts or back to my checking when needed.
As an example I am going to say hypothetically you have $25,000 sitting around in your checking account. After 20 years in a checking account you would still have just that $25,000. Now lets say you place the money in a online savings account. Lets use an average 2% interest rate over a 20 year period. At the end of the 20 years your $25,000 would be worth $37,148.68. I don’t know about you but I like the sound of an extra $12,000 from a completely risk free investment.
So to wrap things up you need to start putting your money to work for you. Whenever you put your paycheck in the bank you are letting them lend that money out to other people. Make sure you are getting as much in return as you can. There is a big difference between $0 and $12,000.