Wealth Building Lessons

In Part I, I discussed the various options available to stash my savings to get the maximum rate of return, while preserving liquidity.

I decided to split my savings into 3. The first half while be kept with Bank of America in their flexible 5 month CD currently paying 5.1%. After 7 days, I can withdraw the money without penalty. Not a bad option, since it balances liquidity with return.

However, one of my main concerns is the devaluing of the US Dollar. Its currently lower than its ever been in history. No one knows where the bottom is, and because Ben Bernanke has hinted that he’s going to continue to lower the interest rates, I feel the bottom is still far away.

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Everyone should have an emergency fund set up with atleast 6 months of living expenses. As I explained the previous post, the most efficient way is to create a CD Ladder.

However, with rates being as low as they are, there may not be any difference in the interest rates whether you keep your money in a CD or a regular savings or money market account.

I keep all my emergency funds in a regular savings at INGDirect. But after the rate cut, I’m only getting an annualized yield of 4.3%. I know there are better options so I looked around to see whats available.

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NPR had an interesting section on increasing economic anxiety in the middle class. Even though the economy is thriving, 7 out of 10 Americans report living paycheck to paycheck, meaning there never seems to be enough left over for savings.

I definitely don’t agree that the economy is thriving. I think the economy is actually in recession but it won’t be announced for another 6 months, meaning it’ll be March before the Fed actually admits to it. (Thats one reason why I think Ben Bernanke will reduce the Fed Funds rate 50 basis points this week, but I digress).

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I dislike paying taxes as much as the next guy. But instead of complaining I’ve put my money in investments that give me tax breaks like real estate and oil drilling programs.

However, some people hate paying so much that they’re willing to live below the poverty level just to avoid “qualifying” for taxes. Here’s a war protester that refuses to pay for the Iraq war and has decided to live on less than $12,000 a year.

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Here’s a parody from Saturday Night Live which explains why so many of us have trouble staying out of debt.

Seriously, most people get into debt because they buy stuff they can’t afford and most likely don’t need. According to The Millionaire Next Door, most millionaires live within their means without getting sucked into the consumer-lifestyle trap. And they pay for most of their purchases with cash too (or they pay off their credit cards in full every month).

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Many of us carry debt on our credit cards, car loans, student loans, mortgages, etc. But once you have your emergency funds saved up, the inevitable question arises. Do you invest your savings or pay off your debt?

You’d definitely want to invest for your future, but also don’t want all your hard earned money to go to lenders in the form of interest payments and finance charges. So you need to calculate whether you’re better off using your money to pay down your debt vs keeping the debt and using the money to invest instead.

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March 14th is Albert Einstein’s birthday! And in case you’re ever on “Who Wants To Be A Millionaire”, he was born in 1879. Apart from his general theory of relativity he’s also allegedly famous for claiming that Compound Interest was one of the greatest mathematical discoveries of all time. He’s also credited with the rule of 72.

The Rule of 72

The Rule of 72 lets you calculate compound interest returns in your head and helps you quickly determine how good a potential investment is likely to be.

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