Fellow Generation Y cohorts, I wish to address you on a more serious subject today: your finances. You may or may not know exactly how social security works. To keep this brief, the social security you pay today covers the retirees of today. This money is NOT being set aside for your future. You can read more about this here.
Personally, I do not want to leave my retirement funds to chance, or politicians. I want to live comfortably in retirement. To ensure that this goal becomes a reality I have decided to start up a savings account. Something, I admit, I should have started long ago. Currently I have a checking account with Wells Fargo and it sucks. They find any excuse to charge me. The only reason I remain a customer is because they are EVERYWHERE, and convenience is important to me. With respect to a savings account, their interest rates are despicable. Last time I checked they were around .06% and required a minimum balance of $300 or else I would get charged a fee. A fee for the privilege of storing my money at their bank! Sadly, this scenario is not unique.
Since everyone who reads this blog knows me, you also know that when I decide I want to make a purchase I do research like a mad man. This time my research has led me to an online bank known as ING Direct and they are the cat's pajamas. If you don't want to take my word for it, see if you can find any dirt on them. They do not require a minimum balance and have an APY of 3.00%. This likely won't be the highest interest rate you can find, but it is competitive. People rave about their customer service and that's what really sold me.
In all honesty, my main motivation for writing this is to share what I've learned in the past few months about finances. My hidden agenda is to get $10 out of you. Here's how it works: If you follow this link to open an account, I will receive $10 for referring you—provided you open a savings account with a minimum balance of $250. Oh yeah, and you get a $25 bonus for doing this. Because none of my friends or family were kind enough to impart this wisdom to me, I had to search online and use some random person's link so I could get the $25. Currently $275 sits in my account and will sit in yours if you do the same. Open an account
So What? Another thing that really sold me on savings was the concept of compound interest. Here's just a tiny example. Say you started your ING Orange savings account today and contributed just $200/month for 40 years. You would have $16,384.58 at the end of that time provided the whopping 3% interest rate stayed the same. (Disclaimer: I would not recommend using a savings account for a long term investment. Real estate, mutual funds, stocks, etc would get you closer to 8%) Now say you procrastinated saving and 20 years later you decide you finally want to start saving. So in your 40's you put $5,000 together and contribute a little more, say $250/mo. for the next 20 years. This would leave you with 15,960.50, nearly $500 LESS. What do you think is more cumbersome? Setting aside just 10% of your income now, or trying to come up with five grand when your kids are starting college? Play around with more figures with this handy compound interest calculator.
Bonus Material: Read on only if interested
A few weeks ago, I finally took my mission president up on a recommendation he made years ago. Oh yeah, he is the wealthiest person I know by a long shot, but that's not what's important. He recommended a book called The Richest Man In Babylon. The take home message is to pay yourself first. In other words, every time you receive your paycheck, set aside 10% for your investment account. Notice I said investment account and not savings account. It is not an account that you deposit money into for a year then spend it on a vacation. It is money you put away for something like a mutual fund. When that money accrues interest, use the money it made to make more. Sounds like a good plan to me.
With this ING account, I can setup a "direct deposit" with my checking account to automatically pull a fixed dollar amount each month (in my case about 10%), so it basically compels me to save. Afterall, sometimes we lack the discipline to save ourselves, right? Once I have a store of 3-6 months income should anything happen, I plan to use this money for investment purposes
Another good read is The Wealthy Barber, a book reccommended to me by my family finance professor. This book is similar to the above mentioned, but rather than teach the priciples through parables, it gives more specific advice through telling a story. Both books are entertaining and educational, and won't cost you anything if you pick them up from the library.
In conclusion, starting a savings account is a good idea no matter how little you have to start. So even if you don't have $250 now to put into a savings account, don't worry about the referral bonus, ING would still be a great place to start. By all means shop around and find what's best for you.
1 comment :
Keegan you've inspired me, thanks.
For real.
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