Don't Wait, Start Saving and Investing Today!
“Wealth, like a tree, grows from a tiny seed. The first copper you save is the seed from which your tree of wealth shall grow. The sooner you plant that seed the sooner shall the tree grow. And the more faithfully you nourish and water that tree with consistent savings, the sooner may you bask in contentment beneath its shade.”
From the classic finance book 'The Richest Man in Babylon'
People have a tendency to procrastinate and it can be a hard habit to break, but one area that will literally cost you if you procrastinate is saving and investing. This is vital to your financial health, mainly due to the power of compounding interest.
The sooner you tap into the power of compounding, the faster your money will grow in the future and the better off you will be. If you have no clue on how to invest the money you've saved, then don't worry. Firstly, it is important to educate your self on the best ways to invest and that is exactly one of the topics I will continue to write about on here. In the meantime, just open an online savings account and hold your money in it until you find a better place to deploy it. One popular choice for Americans is from Barclays, currently yielding 1.00%:
https://www.banking.barclaysus.com/online-savings.html?refid=BBDNWRTSA010916&lag=BBDNWRTSA010916
For Canadians, one of the higher yield online savings accounts is from EQ Bank, and it pays around 2% interest currently.
https://www.eqbank.ca/personal-banking/features-rates
Most of these online accounts have no minimums, no monthly fees, and they pay interest monthly. I like the fact that you can put money in and start receiving cash-flow from the account by the next month. This is good reinforcement for those who are new to saving/investing.
It's true that 1-2% interest isn't particularly high, but it's better than just leaving money in a checking account where it earns nothing, or a traditional savings account with a big bank which pays an abysmal rate of interest when compared to their online counterparts. The reason the online banks can pay more is because they have no physical branch, which means they don't have to spend money on rent, staff, supplies etc to keep a physical location operating.
It should be noted that you will still have to pay tax on the interest you earn, so keep good records of the interest payments and don't forget to include this information when doing your taxes.
I will be discussing other ways to invest and earn a higher rate of return in the future, but for now I'll share one idea which I wrote about on seekingalpha.com.
http://seekingalpha.com/article/3968666-vteb-better-money-market-funds-online-savings-accounts
This involves buying an muni-bond ETF to replace online savings accounts, but there are a couple of caveats for it to work best. First, you will need to set up a Vanguard brokerage account(unregistered, aka not an IRA or Roth) so that you can buy and sell any Vanguard ETF with no commission charge on each trade. The second prerequisite is that you have to be living in one of only seven states that doesn't levy an income tax in order to have this work best. These states are Florida, Texas, Nevada, Wyoming, Alaska, South Dakota, and Washington.
So don't procrastinate saving and investing any longer, the time to begin is right now!
*Disclaimer- This post is intended for entertainment purposes only and it is not financial/investment advice.
Yes, you'r right. Investment is mandatory to stop your money run away.
definitely agree
I used to work for Dave Ramsey, and I think his 7 baby steps are really helpful as they keep things simple. First get a baby emergency fund, then get a debt snow ball going, then a full emergency fund, then go after paying down your house, saving for the kids college education, invest 15% in mutual funds, and finally build wealth and give after that. Really solid basic stuff. Most people, unfortunately, are so buried in debt that 1 or 2 percent savings means nothing if they are paying huge rates on their debt. Better to get debt free first.
I'm gonna have to disagree with Ramsey on few things here. In general his advice is good for getting out of debt but it's the specifics that I don't agree with him on.
First, I believe in even in the face of insurmountable debt, you should still pay yourself first and put aside at least 10% of your post-tax income for savings/investing. Compounding is only effective if you give it at least 10 years to work(hopefully more like 20 to 30 years), and if you spend many months or years paying down debt with no investing at all, it will just take that much longer to get the process of compounding started.
Second, the debt snow ball strategy I don't like either. I understand that this method is more psychological than quantitative, but at the end of the day you will easily pay more in interest if you aren't going after the highest interest debt first and attacking them in order of highest to lowest rates.
Third, he is such a blind advocate for mutual funds that it makes me wonder if he receives any sort of commission for being a stooge for the mutual fund industry. 95% of all mutual funds have high fees and load commissions, which eat away at the return of normal people who are simple trying to invest.
Fourth, even though you didn't mention this, Ramsey(as well as Suze Orman) think that whole life insurance is nothing more than a scam. This is simply inaccurate! If a whole-life policy is structured the right way, it can act as a very conservative investment account but with other benefits that a simple brokerage account with stocks and bonds can't offer. And no, I'm not an insurance salesman, I'm just someone who has done their homework on whole life policies and the facts are there, even if they aren't well known.
Yeah... I don't really like Ramsey too much lol, even though in general he seems like he means well, I just can't agree with him too much on the specifics.
I think Ramsey is a generalist for the masses. I wrote him an open letter as to why he was wrong about bitcoin and I get that he's wrong about other things as well.
True, but I think the point is many already have compounding interest working against them as they pay the minimums on their credit cards. Your most powerful wealth building tool is your income and if it's going out the door every pay check for debt, people will never be positioned to build wealth.
Yes, but not by much. It's supposed to be quick process (less than 2 years). Getting into debt it's about math or people wouldn't do it. It's all about psychology. Sometimes you have to use that same tool to get out. I know many people who would only stick with it if they got the psychological boost of paying something down. Otherwise, they go out to eat and charge it.
My wife and I paid down around $80k in two years. It works and works well.
Again, I think he aims for general public. I know people who have lost large amounts of money because they were in more advanced instruments that went belly up. If they had kept it simple, even with an index fund, they would have done much better.
I've seen too many scams here to endorse the idea in general. Term life while building wealth so you can later self-insure makes so much more sense to me. I pay very little at all and know my family is covered. Again, if the majority of people aren't savvy enough to see the scam from the great opportunity, it's best to keep it simple for them.
Then again, that's probably why he said so many bad things about bitcoin. :)
As far as whole life insurance, I'll just say this. It can be a bit complex for the common person to understand, but I truly believe that the "buy term and invest the difference" philosophy is very flawed. When calibrated properly, a dividend paying whole life policy DOES buy term and invest the difference. It invests that difference in a very conservative manner, and if you reinvest the dividends to buy additional insurance then you have a compounding effect just like with other investments.
Also, the overwhelming majority of term policies never pay out the death benefit, which makes the term policy more akin to car or home insurance since there is the chance that you will never use it even though you have to keep paying the premiums. With whole life policies, the death benefit is inevitable since death itself is inevitable(but there are many living benefits which is what i like most about these policies). I just feel that these types of policies have been unfairly besmirched by many of these finance "experts." It DOES matter how you structure the policies though, as it can end up being pretty ineffective if you don't set it up the right way and most insurance agents actually don't know the method for doing this the right way.