Finance Fridays

Last time I spoke of debt. I would now like to talk about savings. A good savings account will give you about 3% return in interest. This meets the average inflation rate. In order to understand the importance of interest rates we must first discuss present and future values of money. Gone are the days when one could hide their money under the mattress and consider it their savings account. If you do this your money depreciates over time. The spending power of $1 today is greater than the spending power of $1 in the future - unless you invest it. For example, you have $100 that you invest in a mutual fund that makes 10% in one year. At the end of that year you have $110. This can quickly add up. If you had not invested the $100 then at the end of one year you would have the purchasing power of $100 minus inflation. For a better and more in-depth explanation of the time value of money click here.

It is important that your savings accounts earn money, otherwise you are practically throwing away your money. Even savings accounts that you take money out of regularly should be making interest. You should also have several types of savings accounts. Your first savings account is your emergency fund. It is suggested in this emergency fund you have the equivalent of 3-6 months of rent and bills saved in this account. This account should be easily accessible, a regular savings account at your bank should do. Once you have this account established you can venture out into other savings accounts. You can have accounts for you and your spouse's retirements, your children's college/mission funds, your vacation money, etc. Depending on the time frame, risk, and return you desire out of these accounts there are multiple choices. Everything from CDs to Roth IRAs.

I will go into a deeper discussion of those later. For now I must go attend to my son. Hope you enjoyed this discussion.