Saving money.

[Whaazup17]

I have been thinking about saving money in a savings account and see the money come in from interest, but what I haven't been figuring out is inflation..

What factor does inflation play on saving money?

Is it worth it at all to save money? I don't really understand all this..

by the way i'm getting a 2.57% savings rate. I want to put it in a money market account with the potential of 3.25%

[TNathe]

inflation brings the value of the dollar down. Say I can go to the store right now and buy 5 oranges for $1. If inflation sets in that sam $1 bill could possibly now only buy me 3 oranges. I am getting the same product, but less of it for my $1. The trick is to make sure your money is making you more money than inflation is setting you back.

There are inflation protected accounts you can put money into, 10% or something like that of my retirement goes into one. However, you earn virtually nill for your money, and rightfully so, It would take a world disaster to de-value your money. A savings account is just fine for what you need it for, if the economy take a turn for the worse you can always pull it and shove it into an inflation protected account.

[TNathe]

how old are you bud? If your in college yet, sign up for some economic classes, it is very interesting stuff and you learn a great deal. Im not putting you down or anything I jsut want to steer you in the right direction for a chance to learn a great deal about our economy and how the whole puzzle fits together. Too many people in the country have no clue.

[Whaazup17]

got ya. So I got about 5k in there and making about 10 dollars a month. Am I really making 10 dollars a month?

How do you account for inflation?

[Whaazup17]

how old are you bud? If your in college yet, sign up for some economic classes, it is very interesting stuff and you learn a great deal. Im not putting you down or anything I jsut want to steer you in the right direction for a chance to learn a great deal about our economy and how the whole puzzle fits together. Too many people in the country have no clue.

yes I am in college. I haven't been in there to long to start taking electives. I am working and taking classes at night.

[Whaazup17]

oh yea and I just turned 20.

[TNathe]

for being 20 you are certainly in a better postion finacially than 90% of people 10 years older than you. props.

Here's a site I just found with some good articles. Im gonna read them on my lunch break today. http://inflationdata.com/Inflation/Articles.asp

[Whaazup17]

for being 20 you are certainly in a better postion finacially than 90% of people 10 years older than you. props.

Here's a site I just found with some good articles. Im gonna read them on my lunch break today. http://inflationdata.com/Inflation/Articles.asp

oh yea? Better position huh? Thanks a lot.

[TNathe]

sure, you have 5k saved up and are on the right track of saving, not spending. most people in America dont even have ONE paycheck worth saved up. Meaning if they lose there job, the a/c breaks, etc. they'd be hurting financially.

[number_2]

here's how to look at it:

there are three options for your five grand - it could be sitting in a piggy bank in your bedroom, it could be in a savings account/money market as it is now, or, it could be in a higher risk investment (real estate, stocks/funds, that sort of thing).

not putting your money into any sort of investment and opting instead to keep it in your piggy bank is the worst thing you could be doing. your $5,000 will earn zero interest, and inflation will slowly inch upward, so you'll keep your $5,000 (no loss, but no gain either), but the value of that money will decrease. like tnathe already said, that basically means that your five grand won't buy as much in the future as it will now because things will cost more.

okay, the second option is to continue doing what you're doing. your five grand brings in x amount of interest. now you have the principal plus the interest you've earned - say, $6,000. over time, inflation will devalue that money, and just like your $5,000 wouldn't buy as much after inflation, your $6,000 also won't buy as much. but the devalued six grand will still buy more than the devalued five grand. that's important, because it explains why not doing anything at all with your money is a bad idea.

now, if the inflation rate is so incredibly high that your money is losing value faster than it's earning interest, you'll still end up with more money - but it will have less than $5,000 worth of value, which is tantamount to losing money. i assume that's what you're worried about. so here's what you need to remember: as long as the inflation rate is lower than your interest rate, you're making money. the difference between the inflation rate and your interest rate determines exactly how much money you're bringing in. that x dollars a month of interest isn't going to be worth as much later on as it's worth today because inflation will devalue it slightly. but you still have more money, and, assuming your interest rate is greater than the rate of inflation, more value, than you started out with.

the other option you have is to invest in something that has the potential to earn a lot more than the low, set rate of interest you get with a savings or money market account. the possibilities for this are endless, and this is desireable because the more you make, the more it will be worth, even after it's adjusted for inflation. the problem is, these investments are a much bigger risk. there's the potential to make a lot of money, but you could also lose it all. the other two options don't carry that risk - by doing nothing, at the very worst, you could end up with exactly what you started with; and with a savings account, worse case scenario, you get your principal plus the interest earned. again, with this third option, there's no guarentee. but, if you're worried about not pulling enough out of a savings or money market account to combat inflation, then you'll want to consider this type of investment. i'd recommend looking into a fund family of some sort. but like i said, there are a million ways you could go. if making a little more money is important to you and you're up for taking that risk, then go for it. if you just want to safeguard your savings and keeping abreast of inflation is what matters to you, then a savings account will do the trick.

that one's up to you.

[Whaazup17]

thanks a lot guys. I guess I should make a goal and try to save to that goal. I am not going to get rich by putting my money in the savings bank. I need to reach a level of investment I want to get at and then invest the money.

My investment would be a 25k machine where I could start a business with. I think that is where I am going to target my goal at.

[Whaazup17]

ooorrrr maybe MR ALAN GREENSPAN can chime in and tell me where I should put my money... Maybe switch the rates in favor for me...

[number_2]

good luck!

[Whaazup17]

thanks, i'm going to need it. Saving money is hard enough as it is. Hah

[cubanguerrilla]

You are getting over 2% on a regular share account and +3% on MM! I hate the credit union!
If i were you I would invest heavily either in junk bonds or small cap stocks. I mean think about it, your only 20 years old you should be more accepting of risk then when you have a family! Why earn 3% when you can earn 12% on small caps or 7% on more reliable larger firms?
You could earn even more if you went partner with someone on RE. Like preconstruction or even rehab. With current trends you could easy do over 25%-75% I would think! Dont settle for pennies when you can earn 100 dollar bills

[Whaazup17]

You are getting over 2% on a regular share account and +3% on MM! I hate the credit union!
If i were you I would invest heavily either in junk bonds or small cap stocks. I mean think about it, your only 20 years old you should be more accepting of risk then when you have a family! Why earn 3% when you can earn 12% on small caps or 7% on more reliable larger firms?
You could earn even more if you went partner with someone on RE. Like preconstruction or even rehab. With current trends you could easy do over 25%-75% I would think! Dont settle for pennies when you can earn 100 dollar bills

I don't like stocks. I researched them but they just aren't for me. Unless I knew A LOT about the company and where it was going. But I don't like them.

[number_2]

i've said it a million times but i'll say it again. don't look at stocks, look at mutual funds.