Scott Free Thinking

Most people generally like to think of money in terms of how much they earn, but the truth is, when it all comes down to it, it may be absolutely essential to start looking at how much money you have based on how much money you save. And no, I’m not talking about shopping at Wal-Mart or going after those ads in the paper that are selling cars for “only THIRTEEN NINE!” I’m talking about how much money you have left over after your expenses are cut. Whatever money exists beyond the expenses you have, that money is essentially money for growth. Did you earn an extra amount of cash during your paycheck? What should you do with it? If your answer was something like “buy a new pair of shoes!” then it’s possible you may not be on the right track here.

People have actually generated astonishing financial feats when they have diligently set aside even small amounts of money into intelligent investments like CD’s, or certificates of deposit, as well as higher interest yield savings or money market accounts. What are some of the differences between these options?

A certificate of deposit is essentially a loan that you are giving out to a bank, and of course with that loan, they are agreeing to pay you back some amount of money over time, plus interest. It is not the same thing as a savings account, it is actually another form of investment. In a sense, it is still saving money, but the difference might be that you are really locking this money away until you can access it at a later date.

Money market accounts are similar in nature to index mutual funds in that you are essentially putting money into an organization that’s sole purpose is to figure out a way to better invest that money. In exchange for using your money, they of course pay out a particular interest yield. Money market accounts are not necessarily that much more risky as a way to save your money, but you should know that typically money markets will pay off better if you have higher amounts of money than just a few hundred or a thousand dollars to invest.

Savings accounts come in many different shapes, sizes, colors, and tastes, I guess you could say. The best ones are the ones that pay out a nice interest rate. No matter where you go with your money, always make sure that money is insured. If it is a United States bank, where ever you are storing that money needs to be held an account that is insured by the FDIC, or Federal Deposit Insurance Corporation, which will insure each savings account up to $100,000. If the bank is not FDIC insured, do not store money at all. If it is FDIC insured, never store money in account beyond that insured $100,000 mark, always take the excess growth that comes off the interest of that amount and either reinvest the money elsewhere or transfer it to a different account.

For each one of these options, it is important that you do not just take what is said in this article alone to begin making choices. Each one of these has their own body of knowledge to pursue, and you should do heavy research on each one of these before moving any money anywhere! Always do your homework. And with that disclaimer out of the way…

Take a moment to consider something: for all of the money that you have, it can actually sustain you after it reaches a high enough point. If you can hold money in savings, it is only taxed once upon earning that money as ‘income.’ After that initially taxed income, you can hold that money in a bank, allow it to earn interest, and if the amount is high enough, that interest can actually pay the bills. There are of course limits to this, but this essentially means that by just having money, you will make money. For those that suddenly get something like $30,000 in their lap and they decide to do something like buy a new car(even when they don’t need one), they need to realize that situations like that can be put to much better use. Just 2% of $30,000 is $600. $600 that, with a nice interest earning account, you did not have to work for.

$600 can be used for a lot of things, even though really in relative terms it is not a lot of money. I could use $600 to pay at least two and a half months of groceries, pay a chunk of a house payment for the month, pay the electric bill, and much more. And the system is not set up like this by accident, folks - this is to reward those who work hard to earn their money and then they are smart with it. The more you can save while staying out of debt, the less of a burden you will have over time, simply for having money. In essence, it is a residual effect of all of your hard work over time.

But is saving money really the best way to earn money? Heavens no! This should all simply be part of your underlying financial philosophy during the course of your other investments. Saving money, while it might appear natural, can be an essential key element to your financial success. Hanging onto your money has long term value the same way that investing in stocks & bonds might. There is a big difference with saving, however, and that is that it is risk free so long as your money is insured. Save away, my friends.