Have
you
ever heard, "If you don't know where
you're going, you'll probably end up somewhere else?"
It's
good to make plans and set financial goals for
yourself. Imagine the house you want to live in, the
dream vacation you'd like to take, or things you'd like to
do in your retirement years. That's where
saving and investing come in.
People save
money
for long-term as well as short-term goals and emergencies,
like car repairs or a new washing machine.
Savings
are usually about short-term goals and are best kept in what are called cash
reserve assets.
These
are "liquid
assets"
because you can easily get at your money.
For
example, cash is a liquid asset,
but a house is not. If you buy a six-month T-bill, that
asset is not liquid because you will have to pay a penalty
to get at your money before the six months is over.
If you have ever wondered whether
saving is really worth it, take a look at what
saving just $10 each month can do for you.
If you could
save $10 a week, these numbers would be four times larger:
How Your Money Can Grow
Savings Based On $10 Monthly Deposit
Percent Interest
|
Length
|
2%
|
4%
|
6%
|
8%
|
10%
|
1 year
|
121.11
|
122.22
|
123.36
|
124.50
|
125.65
|
5 yrs
|
630.47
|
662.99
|
697.70
|
734.77
|
774.37
|
10 yrs
|
1,327.20
|
1,472.50
|
1,638.79
|
1,829.46
|
2,048.45
|
15 yrs
|
2,097.13
|
2,460.90
|
2,908.19
|
3,460.38
|
4,144.70
|
20 yrs
|
2,947.97
|
3,667.75
|
4,620.41
|
5,890.20
|
7,593.69
|
Dollar amounts are compounded
monthly
|
The
best way to build your savings "nest egg" is to
think
of savings as an expense. When you pay bills, write your
first check to savings. A rule of thumb is to pay yourself
10% of all your income first before any other bills.
|
Most
financial experts say to put aside between 5 to 10% of
your
salary until you’ve saved three to six months’
worth. That way you'll use your savings in
emergencies and won’t have to borrow money or pay
interest on credit
cards and loans.
Savings
accounts are
a safe place to put your money because they are insured up to $250,000 each by either
the Federal
Deposit Insurance Corporation
(FDIC) or
the National
Credit Union Administration (NCUA).
These
accounts usually pay a small amount of monthly interest, do
not require a minimum
balance or
have penalties to use the
money.
Money
market accounts and certificates
of deposit (CDs) will earn
more interest than savings accounts, but they are not
as liquid and usually require a minimum amount of money to
put into them. In most cases, CDs/share
certificates and money market accounts
held with a credit
union or bank are also FDIC- or NCUA-insured.
Certificates, savings accounts
and money market accounts are good places to put money
aside. Once you have set aside three to six months’ worth
of your salary, you can start investing.
Investing
is usually about long-term goals like retirement or paying
for college. Because your money is actually earning money
for you, investing is a way to
build wealth.
What
matters most is not how much you invest, but that you do
invest. It can be scary to plunk down a large amount
of money all at once. It may be easier for you to
invest gradually with a smaller amount over
time. If you invest a set amount each month and
buy the same stock or mutual fund, you will reduce your risk
of investing.
|