Growing up and to this day, my dad still ask me the same question, “When you receive your paycheck, what is the first bill you should pay?” Having heard this question 100’s of times and obviously knowing the answer by now, he still ask me the question like it is his first time asking me.
A lot of common responses are Rent, Mortgage, Car payment, Insurance, Electric bill, and Cable Bill. These are all necessary payments, but if you can discipline yourself to PAY YOURSELF FIRST, you will be amazed at the gains you can make. As soon as you get your paycheck, train yourself to take a certain percent (a good number to start with is 10%; so if paycheck is $3,000, try to set aside $300) of your paycheck and set it aside into a separate savings, investment, or retirement account. A lot of people live paycheck to paycheck and they get themselves into trouble by getting into debt.
A lot of banks and investment companies have automatic transfers where you can set a certain amount to be transferred to a savings account from your bank account on the same day every month.
There are many different places you can put your PAY YOURSELF FIRST money. There are places that have greater growth potential if you are knowledgable about investing or are working with a financial advisor, but there are also safe places to store your money and let it grow over time. I will discuss a few of these areas:
Savings Accounts are a great way to learn discipline. They are not going to make a lot of money for you, but they will make a little while you learn discipline and build up your cash flow, so that you can invest in better things in the future. Here are current interest rates for Savings Accounts for popular banks in the United States.
Bank of America Savings Account: 0.05% (This means if you invest $1,000 and leave it there for the whole year, you will have earned an extra 50 cents). Like I said, Savings Accounts are not used to grow your money, they are used to learn discipline and are a great place to store your emergency fund. Your regular bank account gives you no interest, but a savings account gives you a little and is a great place to store future investment money and to train yourself with saving.
Wells Fargo Savings Account: 0.01% (You will earn 10 cents for every $1,000 put into the account. Like I said, you will not get rich from putting your money into savings accounts, but they are safe and you cannot lose money and it is a great way to discipline yourself on the concept of PAY YOURSELF FIRST).
This is a safe and great way with no risk to build good money habits. You will not get rich from Savings Accounts as you can see, but if you stick to the discipline of saving you will be amazed at the results.
Certificates of Deposit (CD’s) are another safe and great way to learn discipline They will not make you a lot of money, but you will be guaranteed to make a little bit of money depending on the length of the CD. A CD is an investment offered by financial companies and banks where you give them a certain amount of money for a specific period of time and you earn interest on that money.
For Example: Robby’s Bank is offering a 12 month CD at 0.50%. This means you would give Robby’s Bank $1,000, which the bank would keep for 12 months and they will pay an interest of 0.50% for the year. This means at the end of the 12 months you will get your $1,000 investment back plus an extra $5. This rate is better than the Savings Account, but it comes with more rules. There is a penalty if you take your money out before the 12 months is over. With a Savings Account, your money is free to come and go anytime. This is why the interest on a CD is a little better than a Savings Account. With a CD, you are agreeing to keep you money in the CD for the specified time period. Note that most CD’s have a minimum amount you must invest.
Here are some current CD Rates:
6 Month CD at 0.50%
30 Month CD at 0.80%
60 month CD at 1.00%
***As you can see, the longer the CD, the better interest rate you get. That is because your committing to a longer time frame to keep your money in the CD and not take it out. Because you are keeping your money with the bank longer, they reward you with a slightly higher interest rate.
Once again I want to point out, Savings Accounts and CDs are not the best ways you can invest your money. They are extremely safe and are great ways to build good financial habits and discipline.
If you have any more questions about Savings Accounts or CD’s please feel free to email me. Thanks.