Question by Sydney: Need tips on how to save my money wisely..?
I am interested in not only saving money but also how I can invest wisely. I know nothing about this sort of thing. Anyone have some good advice? Can anyone explain what CD accounts, savings bonds are, and anything else that I might find useful to know on how to make my $ $ grow. I live in California and it’s ridicously expensive here. I would like to save $ $ because my dream is to buy a home someday.
Best answer:
Answer by Mark W
You should hire a financial planner to help determine the best way to invest. Be careful, if he/she is steering you to a series of front load funds only, they are going to get rich off of you and do not have your best interest at heart.
Cd’s, Savings Bonds and Money Market Accounts are the safest, but tend to have the lowest return on investment, with inflation often beating the interest return.
You should have a life cycle balance. The farther the date for your goal for the money, the riskier (thus higher return) your investment should be. Then shuffle the money to safer investments as that date gets closer.
Also, create a Pre tax (tax deferred-income is taken off before taxed and the taxes are paid at withdrawal) series of investments, along with a non taxable series (taxes taken before investment and the return is tax free).
For the best information, just like going to trial, always hire a professional.
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A good way to save money is to live in a small apartment or rent a room somewhere. Or you could you try not to use to electricity as much. Conserve energy.
that’s a good goal, i just did it too
start off by depositing a specific amount of money either directly from your paycheck by wire or by making weekly deposits at your bank. Once you have established an account go online and look at ingdirect.com they are offering a 4.35% interest rate on their savings account. there is virtually no risk involved and your money is always available to you at a moments notice. continue doing this religiously for as long as it takes. once you have saved about 500-1000 dollars, ask about CD ladder strategies that will pay around 5%
any other strategies that pay higher rates will always come with a much greater risk of losing your money.not going to help you buy a house. good luck and also i am not trying to promote ing , it just happens to be the best bank at the moment
here’s some info on savings accounts: http://savings-accounts.yourinfopalace.com
there are a ton of other sites on budgeting your money. you need to set-up a plan so you can save for a certain goal (in your case a home).
a financial planner isn’t really an option at this point as you probably do not have enough to invest. An experienced financial planner would want at least a 100K to invest (this is particularly true in Silicon Valley, California).
if a financial planner is taking clients for less than that you will probably be dealing with a college grad that knows slightly more than you.
Don’t hire a financial planner. It’s a waste of time and money. By doing your homework (as you are doing by asking for advice) and learning about different financial instruments YOU can put yourself in charge of your money and create a great financial future!
First, wise money management begins with good recordkeeping. Always remember to keep track of your money–especially in your checkbook.
A CD (certificate of deposit) allows you to invest your money for a set period of time at a set interest rate. If you withdraw the money before the end of the time period, you will lose some of your interest.
Savings bonds are government-issued debt that you can purchase. The interest on these isn’t taxed until you cash them in. Bonds may or may not earn a higher interest rate than CDs. Check them out at http://www.savingsbonds.gov
Also, check out money market accounts like the Orange Savings Account at http://www.ingdirect.com There are no fees and no minimum balance, and the interest rate is good (4.35%). There is no penalty for withdrawing money and no set period of time to keep it in the account. It links to your existing checking account. I’ve had one for over two years now, and it’s one of the smartest moves I’ve ever made.
All of these are good short-to-moderate-term investments that will help you save your money a little more easily and help it grow. Home ownership is awesome! Best of luck to you as you reach for your goals.
To give you specific advice on what to invest in based upon the 2 sentences that you provided would be irresponsible so I will speak in general. Before I do that I will address the specific investment products that you mentioned. A CD is a bank product in which you enter into an agreement with the bank that they can use your money for a fixed period of time and in return at the end of the term they will give you back your principal and pay you an agreed amount of interest. These accounts are insured by the federal government so there is no risk to your principal whatsoever. Because of this lack of risk the bank cannot invest your money very aggessively. Because of this fact, the interest return that you will receive is quite modest. Savings bonds are securites issued by the federal government. They also guarantee that you will receive your principal back plus interest in return for allowing them to use your money. There are some wrinkles in there like tax free interest if used for higher education but the same applies in terms of modest interest. You mentioned that you wanted to know how to “grow your money”. Savings bonds and CD’s are not designed for growth. The interest that they earn is not enough to outpace taxes and inflation. They are designed for capital preservation.
First of all, if you have any high interest unsecured debt like credit cards I would recommend paying that off. That can save you 15 – 20% there in interest. (A penny saved is a penny earned). If your unsecured debt is taken care of my next recommendation would be to create an emergency fund equal to 4 months of your fixed expenses. (mortgage, rent, car payment, food expense, etc) This emergency fund should be put in something that has no risk to it such as a savings account, money market account or extremely short term CD’s. Check http://www.bankrate.com for the best available rates. If you have access to a credit union you may find good rates there as well. If debt and your emergency fund are taken care of I would then recommend that you are maxing out your company retirement plan if that is available to you. If that is not an option, a Roth Ira would be a great option as well. I would recommend index mutual funds as the investment within the Roth IRA. If you have accomplished all the things that I’ve outlined and you still have money left, I would recommend splitting up the funds in a well diversified portfolio of mutual funds with index funds as the base of the portfolio.
I realize my recommendations are not as sexy as opening an internet business or investing in gold but they are based on my 15 years experience as a financial advisor. Good luck to you. I hope this was helpful.
For the haters out there bad mouthing financial advisors I would ask you if you had a child that needed her apendix removed would you buy a book or go online and read up on this and then perform the surgery yourself? I realize that there is nothing that a financial advisor does that anybody could not do themself if they had the time or interest to properly educate themself. The fact is that most people don’t (including the haters on this site I would bet)