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You Still Holding Onto Cash???

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Are you one of those people who keeps their money in their mattress?  That’s the old saying, but don’t take it quite literally.  It was used to describe someone who didn’t trust their money in anyone else’s hands but their own.  But that is narrow minded thinking and thinking that will bring down the value of your money.  But you may be thinking, “I don’t hold on to my cash.  I have it in the bank.”  Well, that may be a good thing or a bad thing.  Let’s look at why and what your options are…

Money In The Bank

No, I am not talking about the wrestling challenge you just watched on TV.  I am talking about putting your money into a standard savings account at your local bank.  Most banks will only give you about .01% interest on money you have saved with them.  That is pretty much nothing.  What’s the big deal you ask?  Are you familiar with inflation?  At that crappy interest rate from your bank, you are actually losing money.  But how…

How You Are Losing Money

Inflation is the general increases in prices and fall in the purchasing power of your money.  Inflation is an average of about 2% a year.  Look at it like this.  If you are holding onto your money, or putting it into a very crappy savings account, then your money is losing value.  Picture this…if you have $100 at home in your dresser drawer, or in a crappy savings account, and you keep it there for a year, it will be worth about $98 at the end of that year.  Then if you hold that same $98 for another year in the same spot, it will be worth about $96 at the end of the year.  You just lost $4.00 in two years by “saving your money.”  That’s no bueno.  But you have alternatives…

The Alternatives…

Instead of holding onto your cash or storing it in a crappy savings account with a low interest rate, you can put your money into one of these alternatives:

  • FDIC Savings Account With High End Savings
    • These are banks, mostly online, that will give you around 1.5% – 2% or more interest on money you put in their savings accounts.  Banks like Ally, Marcus, and CIT offer some pretty decent rates.
  • 12 – 36 Month Certificates of Deposit (CDs)
    • CDs can be a great place to put your money if you won’t need it for a specific period of time.  It’s pretty easy to find a CD with at least a 2% interest rate online today.  Though it’s true you can get your money back at any time, by breaking the CD, it comes with a penalty.  This will cost you some money, wiping out any gains you may have earned or even stealing from the principle.
  • Treasury Bills (T-Bills)
    • These are short-term government debts that are backed by the U.S. Treasury Department.  You loan them the money and they pay you back with interest.  The great thing about T-Bills is that you don’t have to pay any tax on interest you make.  TreasuryDirect is a great place to find T-Bills online.
  • Bonds
    • Bonds are a loan to a company or government entity that pays back a fixed rate of return.  They are generally safer than stocks, but still have some risk.  Vanguard offers many great bonds.  Check out their web site or call them directly.  They are great to work with.

The Takeaway

For the record, I am not a financial advisor and the typical CYA is to tell you that this information is for “educational purposes only.”  Now that I have said that, I want to say that you need to have a plan for your money, or it will just wither away.  There are a lot of great options out there besides holding onto your cash, either at home or in a crappy savings account at your bank.  Don’t let inflation steal your money.  Look into these alternatives or talk to a financial advisor about some options to help your money grow.

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  1. […] It’s that simple.  Use one income to cover all your living expenses.  Use the other income entirely for savings.  We won’t go into all the ways to save money here, but you can read about some great ways to save money in my post:  You Still Holding On To Cash???. […]

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