Good morning Dinks. It seems like everywhere we go people tell us to save money. But why? You are probably wondering what is going on right now, a personal finance blogger telling us not to save money. To be clear that’s not what I’m saying, well not exactly.
So take a moment and think about it, why do you save money? I am not talking about diversifying your retirement portfolio, buying mutual funds and trading stocks because that’s investing. I am talking about saving money, you know cold hard cash. All I’m saying is don’t save money just because, save your money for a reason.
Why are you saving?
Maybe you are saving money because you have a goal, like somewhere you want to go or something you want to buy. Maybe you save money every month because you just don’t need all of your income to live or maybe you save money because you feel like you are supposed to.
The truth is I hate saving money, but I do it because I need to save up to buy all the things I want. Saving money is boring and it takes forever for the money to grow. Yes I could always live on less and save more, but I don’t want to. I prefer to save money for the short term because I prefer to do other things with my money like travelling and enjoying my life. So before you put more cash into your savings account here are a few things to think about.
3 things you need to know about saving money:
1. Your money won’t grow. Saving money is not the same as investing money. Saving money is hoarding cash and I don’t like it because it doesn’t grow my money. I save for the short term and only keep a little bit of money that rolls over every year in cash because I hate earning a low interest rate. I prefer to invest my money in mutual funds and watch it grow.
2. You can always get a better rate. Saving cash money in a savings account is painful because your money doesn’t grow, but it doesn’t have to be excruciating. Shopping around to find the best rate on a high interest savings account will help you feel better about keeping money in cash – just in case it hurts you as much as it does me. Our friends at Go Banking Rates recently released an article featuring the top five savings accounts. Check it out and see how your interest rate adds up.
3. Saving money should ALWAYS be for the short term. Every month I see financial bloggers posting their net worth and almost every month their emergency fund of cash grows bigger and bigger. This is a huge mistake. Keeping money in cash should always be for short term goals aka within a year.
My emergency savings fund is investment in a short term bond fund. It gives me a higher rate of return than a savings account and I can always access the money within 24 hours. I do keep a small sum of money ($500) in cash in a savings account for any type of emergency that can’t wait 24 hours. The rest of my cash is saved and spent throughout the year on travelling and expensive household necessities such as furniture.
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