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A Simple Money Saving System Anyone Can Follow
Savings plans are pretty easy to put together. I would caution you again that you only want to keep a maximum of six months salary in your short term savings. Any money beyond that should be invested in a solid market investment, retirement, or college funds depending on your situation. I would advise you to get a financial advisor at that point. Anyone who is half way decent pays for themselves in tax breaks alone. Give them a year, if they are not paying for themselves try out the competition.
I usually save for a target of some kind. I create a budget for myself by tracking one full month. I track everything down to the $3.50 I spent on that quick visit to hot pretzel stand. From their I subtract everything I made that month. I don't hesitate to buy anything I would normally buy myself, so I can get an accurate picture.
After I know how much I make and how much I spend, I subtract the two and come out with my month surplus. In some cases, it is zero. Then I identify the new savings goal. It may be a television, a trip or just about anything. I then take one third (1/3) of my month surplus and stick it in an online savings account. In fact, I use my HSBC online account specifically for savings for new acquisitions or goals that suit my fancy.
Now obviously you can't do this all time. On months that I am not doing this, I will put that 33% towards retirement or the kid's college fund. I try to reevaluate my surplus any time my wife and/or I receive a raise of any kind.
Step 2: Ask Yourself, "When Should I Switch My Money To CD?"
Certificates of Deposit (CDs) are basically short term bank accounts that pay a specific interest rate for a specific period of time. Withdrawals prior to the specified date result in a penalty.
When it comes to your short term money, Certificates of Deposit are always going to give you the greatest rate available, if you look around just a little. They often yield better rates because they are not pure liquid and to some extent tie up your money with the bank that you choose to purchase the certificate with. So as an incentive, banks will offer better rates on Certificates of Deposit. Interest rates on online savings accounts can in some cases hold their own against the running CD rates. In the future, I expect to see some form of paperless CD beginning to be offered that will offer a steady CD rate that consistently beats online savings accounts. In the meantime, what are we to do?
Here are some common signs that the rates will be falling and you should lock in a rate by buying a CD:
1. The Fed announces two successive cuts in interest rates.
2. Inflation rates are really low.
3. When unemployment rates go up drastically.
4. When housing market sales are way down.
5. When retailers sales are down sharply for two consecutive quarters.
6. If the Gross National Product takes a hit.
7. Manufacturing industry reports bad numbers.
8. If inventories are up. This means people aren't buying things.
9. Oil or precious metal prices fall.
I usually wait until I see two of these events take place and then I start looking for great CD rates.
Here are some common signs that keeping your money in an online savings account is a good choice:
1. Consumer Price Index rises.
2. Durable goods orders rise.
3. Housing sales and the number of mortgages taken out rise.
4. Producer Price Index rises.
5. Retail sales rise.
When I see all of these things fall into place, CDs are a waste of time because they lock up my money.
Because we all can be smarter with our money.