July 21, 2011

The New Way to Save Your Money

Unemployment is steadily between 8-9% and yet to no avail, the government keeps printing money with reckless abandon. While expanding the monetary supply is somewhat appreciative in that it diverted us from potentially another Great Depression, it also has its consequences (i.e., high gas prices and increasing costs for food, clothing, etc.). The Federal Reserve and FOMC (Federal Open Market Committee) have “created” a record amount of money while simultaneously keeping interest rates near zero. And consequently, the more money our government “creates” and put into circulation – the more worthless our money becomes. It’s a bitter pill to swallow for all…a “Catch 22” if you will.

Obviously, as the (printing) wheels of currency keep on turnin’….the paper dollars you and your family save will keep on burnin’. Think about it! How much interest are you earning to keep your dollars in savings accounts?? I imagine 90% of you will agree that you are earning less than 1% in a bank savings account…and I bet that the other 10% of you are earning less than 3% in a perhaps a CD or MMA.

Here’s an example of this governmentally induced highway robbery that’s taking place – take for instance that the average national gas price in March 2010 was 2.75/gallon – today (07/21/2011) the average national gas price is 3.78/gallon. That is an increase of 37% in one year on just the cost to fill up your gas tank. Now, hopefully most of you are smart enough to see that putting all of your money in a bank savings account that’s only earning 1% interest is foolhardy….especially when your gas bill just shot up 37% in one year. Not to mention the increase in your cost of food or just about everything else you purchase. No wonder you are constantly transferring money from your savings acct to your checking acct.

So how do I propose we save for the future? It seems almost impossible given that incomes in America are stagnant – and have been for quite a while. Most pay raises have barely touched a measly increase of 3%, while the cost of living for almost all Americans has increased about twice as much. It’s kinda tough trying to save that emergency fund, huh? And for those of you who have your emergency fund established…doesn’t it seem like you always need a little bit more to feel comfortable?

So here’s my proposal: Instead of saving your money in a savings account – diversify your cash into a self managed investment account. Not another 401K or IRA – but an account through an online brokerage (Sharebuilder, Schwab, E-trade, etc.) where you can be aggressive with your savings (and FYI – this brokerage account allows you to instantly transfer money back and forth between savings and your investment portfolio…without a penalty!). If you can save $1000 a month (more or less), it might not make sense to put the entire $1000 into a savings account. Split it up 80/20, or 60/40, or whatever you desire – and invest a portion of your “savings” into ETFs, Commodities, or REITs (Real Estate Investment Trusts), into a portfolio that you have control over. I love putting a portion of my savings in Agriculture, Energy, and REITs.

Why do I like these investments? Very simple – DIVIDENDS! There are some REITs out there that pay a 14% yield in dividends in addition to whatever capital gains you may receive. Sounds a lot better than that 1% yield at your bank account, right? If you look around you’ll find some good investments paying 5% or more in interest…this will help you pick up the pace in building your savings.

Here’s the disclaimer – this is a riskier strategy than just holding your money in your savings account. But, if you think about what I wrote in this article, isn’t investing a portion of your savings just as risky as trying to put it in an actual savings account?? Just a thought.

To get ahead – we have to think differently and creatively.


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