Hey Fam! Welcome to another blog post. In today’s economy saving has become quite expensive. Banking fees are increasing while interest rates are going down. So if you have not deposited any money in your current savings account for quite some time, that amount may actually be less than what you put in.
What You Should be Saving
Don’t get me wrong, saving is a very good thing. Everybody should have an emergency savings fund. The general rule is to have at least three months’ worth of essential expenses saved up in an instant access savings account. Expenses like rent or mortgage, food, car payments, school fees and any other essential liabilities. But beyond that amount is it really sensible to save, when your money could be working for you?
What is Investing?
An investment is just that making your money work for you by purchasing a monetary asset with the idea or belief that the asset will provide income or will be sold at a higher price for a profit in the short-term or long-term future. For example investing in art, land, stocks, bonds, treasury bills or cryptocurrency. So, there are risks involved as companies can fail or the price of the asset can fall below the price it was purchased at.
You can mitigate against risk by doing proper research before investing in tangible assets such as art or property. Choosing sound companies to invest in and investing in financial instruments with low to moderate risk, like treasury bonds or corporate bonds. A treasury bond has a low risk as governments rarely default on their loans, so you are guaranteed your pay out. Bonds are less risky than stocks (shares) but more risky than treasury bonds. Generally speaking though, corporate bonds tend to at least, pay back the money that was originally invested in the bond (principal). Cryptocurrency is the future, think of Uber and Alibaba. This requires thinking long term. However, given the uncertainty surrounding the market it carries a moderately high risk
Before you think of investing ensure you have built up your emergency saving fund as stated before. Also you need to know how much return you expect to gain out of your investments as these returns could fund your retirement, send you on a trip, set up your children’s college fund etc.. To gauge how much you will need take this quiz to put your current financial path towards retirement into focus.
Why it is a Good Time to Invest
Now the truth is, in theory, when interest rates are low, it poses as a stimilus to spend or invest more. Especially when the expected interest rate remains stagnant or will continue its downward trend. Why? Because it beomes a disincentive to save when interest rates are very low. Think about it you are eroding your savings with with annual banking fees and there is little to no return on your money and inflation rates are rising. So if you save now to spend later, with rising prices (inflation), for e.g. banking fees; that money buys less in the future than if you spent the money now. Now is the time to think about investing.
Seek Professional Assistance
A good financial advisor will guide and educate you along the best paths to achieving financial stability or success based on what your goals are, your risk tolerance and the amount of time you have set out to achieve those goals. They will encourage you to diversify your portfolio and help you choose the right combination of assets such as stocks and bonds or the right type of account you should have.
If you are unable to seek professional help, try getting advice from a family member or a friend who has achieved similar financial goals to yours or who is financially stable.
If you are going to have your money sitting down in an institution for a while ensure that it is an interest-bearing account. I am referring to moving your money out of a checking/current savings account to a money market account that offers higher interest. Some types of financial institutions offer higher interest rates such as credit unions or building societies. Please bear in mind that this is quickly changing. Since the financial meltdown there have been more regulations placed on financial institutions.
I really hope that this post proved helpful. Leave me a comment down below letting me know what you think. If you just want to leave me some positivity, click the heart ♥ down below ↓. Kindly share this post with everyone, especially someone who may need it and keep the conversation going. Thanks again for stopping by, until next time Fam, walk good.
Jamaica Stock Exchange. (2017). Frequently Asked Questions JSE. https://www.jamstockex.com/about/frequently-asked-questions-jse/
Federal Reserve. (2017). The Low Level of Global Real Interest Rates. https://www.federalreserve.gov/newsevents/speech/fischer20170731a.htm1