Skip to main content

Post Topics

Show more

SAVINGS | Paying you not to spend your money... sort of.

Sign: We cheat the other guy and pass the savings on to you!
Bruce Fingerhood "Save" Sign in antique store, Oakland Oregon.


The sign above is a humorous example of an underlying truth about banking. The bank uses your money in order to lend it to other people. The bank charges them more than they are paying you (that's their profit), but they are paying you. So the bank is charging the other guy (or girl) enough intrest to pay themselves and you too.

In other words:

Sign: We cheat the other guy and pass the savings on to you!

In addition to checking accounts the banks offer savings accounts. 


This is where you keep money that you may need within 6 months or less, but probably won’t need within 30 days. 

There are two primary purposes to having a savings.

1. To keep money out of your checking so that you are less likely to spend it. 
2. To have a place to add to your savings (set aside money) and build it up. Investment advisers say you should have 6-9 months’ income in your savings at any one time.

Generally speaking a savings account with no restrictions will pay less interest. Some savings accounts pay a higher rate of return in exchange for time commitment. These savings accounts are known as “CD’s (certificates of deposit)” or “Time accounts”.  

As an example:

A normal savings may be paying 0.15% for $5,000 while a CD may pay 5% for the same $5000 for committing to leave it in for 6 to 12 months. (of course that's when the economy is doing well, it could be closer to 1% or less too).

You may ask:
“I don’t want to lock away my money… what if an emergency comes up?” 

That is a great question. I have a question for you first.             

“What if you have no emergency how much money will you lose after three years of waiting for an emergency?” 

Any funds you don’t plan on needing for 6 months or more should (generally) be placed in CD’s if the rates are much higher.

Some people use the emergency excuse for not putting money into a CD. For example they’ll say that if an emergency came up like car repairs, or doctors’ bills that they didn’t plan on or expect and they need the money they don’t want to have to pay the interest penalties for taking it out. 

This could sound reasonable. 

But it’s usually not.

The money is there for emergencies. That’s one of the many reasons to own a savings account is to put money away for a time you may need it or want it.

These are not good reasons, however, to stay out of CD’s unless the emergency you’re referring to is not unexpected.

If you’re actively looking for a house and expect to buy soon, or you have a relative who is sick and likely to need medical expenses paid then maybe you were wise to withhold from a CD.

Possible emergencies that you don’t even know about are not good reasons to avoid putting money into a CD. Leave some out for emergencies and put some in for interest. Leave out 40% and put in 60%.

Think strategically.

~Thinking Beyond Today~

            
If you need to take the money out early for some unseen emergency you will typically still earn more on the money long term even after the small penalty they charge to take it early. It’s wise to put it in because if you put it in for a 12 month term but then had to break it out after 8 months and paid a 6 month interest penalty, you still earned two months of good interest and that was probably more than you would have earned in a year in the lower interest in a regular savings account.

If you didn’t end up needing it you were even wiser because now you haven’t lost those other 6 months of interest. You remember our case study Robert?

He only put $2,000 in of his own money and never touched it. Where did the $48,000 come from? Compounding.

Compounding is one of the most powerful forces in the world of finance.


~Exercise: Math Time~

            
The money earned in a Savings/CD (or for that matter the interest you pay on a loan) is calculated by most banks using a formula called daily compounding (also known as Simple Interest). This is the formula to compute compounded interest for one month:

Balance * Rate * Days in Statement Cycle / 365 = Monthly Interest



Robert put in $2,000 of his own money.

In order to calculate this we must know how to turn a percentage into a decimal figure. To do this simply take the decimal point and move it two spaces to the left. For example 10 % is the number 10.00. Then move the point to the left two spaces which is now 0.10.
            
As for statement cycles, most statement cycles will vary between 28-36 days. Short months, such as February will be less, and long           months that include more weekends and holidays may be longer. However for our purposes we will use an average. The average month is 30 days. There are 365 days in a year.

~Example of Roberts IRA~


($2,000 X 0.10 X 30)÷365 = $16.44 Per Month

Robert only earned $16.44 the first month. If you took this amount times 12 months you get $197.28 for the first Year. If you then take that and multiply it by 18 years you only get $3,551.04. At a linear rate of growth he would have only earned $3,551.04 for 18 years’ worth of investment. So where did the growth come from? How did Robert gain over $48,000? That is where compounding comes in to play. The first month he earned $16.44. The next month his balance was $2016.44. So now you plug the new balance into the same equation and you get $16.57.

($2016.44 X 0.10 X 30)÷365 = $16.57

So the second month he’s already earning more than the first month. As this process rolls on and on over the months and years the amounts will eventually get exponentially larger. The bottom line of compounding is: Your interest earns interest. 

This is one way to make your money work for you.

I once read a case study of a man who had saved over $850,000. He would take $45,000 a year to live on and keep the rest in a CD. However he was earning nearly $48,000 a year in interest. This means that after taking out his 45K he was still 3K ahead of the previous balance.

Every year his account would get bigger and his income would stay the same. This became a perpetual flow of income for him. This would only work as long as you had the right rate. As rates rise and fall he would have years where he did not earn more than he took out.
However, he also had years where he earned far more than what he took out. He found the best way to balance the flow was to lock in longer terms when he felt rates were peaking and about to drop again.

It's better for your money to work for you than for you to work for your money. This man had put his money to work and therefore he didn’t have to work for his money. 

Also the $45,000 a year went much further because he owned both of his homes and all his cars debt free. The average person spends between one quarter and one third of their income on housing/mortgage/rent costs. If you didn’t have to spend that money monthly you could be freed up to do a great many other things.

~Freedom~


What do you pay in mortgage or rent each month? What would you be able to do if you made the SAME income you do now, but DID NOT have to pay that amount to anything but yourself? Would you live differently?  What Ministries could you give to? And that is exactly what your goal should be!!!!




The Insider

The Insider is a BIG fan of Dave Ramsey:

  • Go read/listen/watch Dave Ramsey and he'll teach you how to do it right!
  • Listen to The Dave Ramsey Show (HERE)

Comments

Connect With Me

Popular posts from this blog

New Post at Wolfe for Office

I wrote a new post: I am a Conservative-Liberal | Republicans and Democrats are actually the same party, here's why I'm a #ChristianLibertarian







Darrell G. Wolfe

Story Teller | INFJ | Futuristic | Intellection | Learner | Ideation | Achiever | Command | Input | Focus | Multipotentialite

Book Review: Name of the Wind

So a while back, I was walking through Auntie's Bookstore, in Spokane, WA. I've read pretty much everything ever written by Ted Dekker, Bill Myers, CS Lewis, JRR Tolkien, and many others.

I told her I like the Fantasy & Science Fiction genres, and I was looking for a new author.

"I have just the one," she said. "Follow me." She came out from behind the counter and we meandered up and down a few aisles. "Here it is," She turned and handed me this book:



"Hm. I've never heard of him," I replied.

"He's Lord of the Rings, Harry Potter, and Chronicles of Narnia all wrapped up into one amazing story," she was quite excited. "You'll love it!"

The woman handed me a few others to consider and then went about her duties. I took pictures but didn't have any money to spend that day.

Later, because I'd mentioned it, my boss bought it for my birthday.

I just finished all 713 pages, and I am AMAZED!

This migh…

An Open Letter: John Stumpf, Wells Fargo Board, and Policy Making Departments

On 12/28/13, I wrote the following letter to the then CEO & President of Wells Fargo, John Stumpf. It was in part, a response to the LA Times Article and the poor response from Wells Fargo leadership.

I later worked for the executive office and saw how they handle these letters. They assign them to a paper-pusher who could care less. They draft a form response, and it gets tallied in the statistics.

By the time it makes it to the CEO, it's only data in a pie chart. "We had 365 complaints this month. x number of complaints about checking, y number about sales practices, Etc." They tally it up, if it's not a big enough stat, it gets zero attention. Most things that do require attention get just enough to make it go away, but never deal with the root.

I was one of many hundreds who spoke up loudly and actively for years before 2013 and years after. The news cycle of 2016 showed that it cost them $185 Million dollars to ignore the feedback their frontline Team Membe…

Order. Chaos. In Between... The Bible

The Dark Ages were primarily due to religion.  Religious leaders had the audacity to claim that only they could interpret the Word of God for the simple-minded laymen. Even clergy of lower stature couldn't read the bible. This led to the strange fantasies, whimsies, and odd ideas of any number of so-called "Priests". 
Enter Martin Luther, circa 1517 A.D. He had the outrageous claim that all men were saved by Faith, and not deeds required of them by Religious Leaders. How did he get this idea? Reading the bible for himself.
The Reformation directly caused the Enlightenment.
When men were allowed to read the Bible for themselves, instead of being told what to believe by so-called leaders, they found a God of order. Therefore, the Earth created by this God would have order.
This thought led to Newtonian Physics, printed books, engines, light bulbs, Einstein's theory of relativity...
All science, medical advancements, everything you drive, see, eat...
The next time you …

Dreaming Blue: Faith and Hope Expounded

Hebrews 11:1

English Standard Version (©2001)
Now faith is the assurance of things hoped for, the conviction of things not seen.

American King James Version
Now faith is the substance of things hoped for, the evidence of things not seen.

Douay-Rheims Bible
Now faith is the substance of things to be hoped for, the evidence of things that appear not.

Weymouth New Testament
Now faith is a well-grounded assurance of that for which we hope, and a conviction of the reality of things which we do not see.

Young's Literal Translation
And faith is of things hoped for a confidence, of matters not seen a conviction,

Interlinear Bible

1Nowfaithis the substance of things hoped for , the evidence of thingsnotseen . ~estin{V-PXI-3S}de;{CONJ}pivsti?{N-NSF}ejlpizomevnwn{V-PPP-GPM}uJpovstasi?,{N-NSF}pragmavtwn{N-GPN} e~legco?{N-NSM}ouj{PRT}blepomevnwn.{V-PPP-GPN}
_________________________________________

Hope: Greek Elpid'zo
to expect or confide:-(have, thing) hope(-d) (for)

Faith: Greek Pistis
conviction …

What is a Topos? A strategic position of opportunity and influence

What does Topos mean?Topos is a Greek word meaning: "Place, or Opportunity"
Properly:Any portion of space marked off, as it were, from surrounding, space Metaphorically: The condition or station held by one in any company or assemblyopportunity, power, occasion for actingA spot (general in space, but limited by occupancy; whereas chora is a large but participle locality). As used by me: Topos is a strategic position of opportunity and influence
Topos: Your Calling Everyone has a God given calling on this earth. There is something you were created and designed to do. What you are doing now may be "The Calling"; or, it may be the calling for this season of your life. Either way, you are either in your Topos, or you need to find it.

As you read the stories of biblical heros like Noah, Abraham, Joseph, Moses, David, Nehemiah, Peter, and Paul... etc... you find that God put them in the right place to do the right thing at the right time.

They ended up in their Topos, …

White Nose | Scene 3

The Aleve took effect with the help of two breakfast whiskey sours. It had been three days since his tussle in town and he still couldn't sleep, despite the nighttime cocktail.
Beams of light broke through the trees outlining Ash's house, tucked back off of the main road by a mile long rock driveway. One such beam was tanning his pale country face as he rocked on an old wooden chair he'd carved himself. Whittling was one of his most relaxing and profitable talents.
One look in the mirror each summer reminded him that he only retained two colors, pale Irish freckle and redneck red. Ash was careful to avoid too much contact with summer's star.
Dust down the drive revealed the presence of a visitor before the sound of tires on gravel confirmed it. Ash hasn't been visited by more than three people in the eight years he'd been back in town, so he picked up the hunting rifle, just in case.
The scope showed the local sheriff, his friend Dan. He didn't usually com…

Focus... Unfocused

There's a version of my writing that is organized, thoughtful, researched, helpful, even inspired at times... And then there's the other stuff. The other stuff is wild, incoherent, off the cuff, straight from my mind to your eyes, unfiltered, unedited. I've tried to separate these into different sites, combined them again, separated them again.... *sigh*I have too many thoughts, too many opinions, I know too much to ever make any of it make coherent sense on one website.So, here's my newest attempt to make it work... My blog, the one under my name, DarrellWolfe.com, it's for my randomness. This is where I'll post whatever I want, whatever thinking about, randomness.I'll link out to posts at my other sites, be they few or many, and you can find the organized stuff there. Let's see if that helps me keep some semblance of order.Darrell Wolfe Version 1,037



Topos Transitions

Transitions are rough. I've been through many seasons of my life where I had to make a transition. At each and every stage it was tough. There are always things you miss about the last season, things you are hoping for in the next season, and things you can't wait to be rid of in the season you're leaving behind.Whether you are sensing the winds of change blowing you out of your current situation, you are in the middle of the trip, or the winds are at your back and you settling in to your new spot... Remember this word: ToposTopos is a Greek word and it essentially means:Your strategic position of opportunity and influence.Make your Topos count today, wherever you are.Darrell




Credit Building

I just met three people working at Carl's Jr. We had a great talk about income, credit, and demystifying credit. So many people need a financial doctor and don't know it. Or they do know that they need one but don't know how easy it is to have one. I gave them a few tips, my business card for credit, my friend Ben's business card for Insurance and Investments, and told them to come see me so we can get into more details.They didn't realize that someone would be willing to help without having to pay a consulting fee or go or a class.I love helping people. Love it. And as Zig Ziglar said: You can have anything you want in life if you help enough other people get what they want. I don't concern myself with whose going to make me a sale, who I can get something from, etc. If I simply help everyone I can, without regards to my reward for it, the reward will come as a byproduct.It was a great reminder that I'm on the right path.Darrell

About Me

My photo

Hi! My name is Darrell G. Wolfe. I am a wealth of random information and I make complicated things simple at DarrellWolfe.com.

I have a knack for absorbing information, breaking it down to its root elements, and teaching it to others.

Most importantly, I help purpose-driven people to understand their place in His-Story and provide them the tools they need to fulfill their unique position of opportunity and influence in this world (their Topos).