Marin Mommies is happy to present another great guest article by Marin mom and financial planner Katy Song, CFP®.
Since the market tanked in September 2008, most people feel burned and are hesitant to jump into the market. Even if you are ready to invest the cash you have sitting around, where should you put it? Whose advice can you trust? Do you need to pay someone to tell you the right answers?
Don’t get me wrong, cash is good! But you do not want to keep too much cash on hand without a good reason since it will lose value each year with inflation. For example, $10,000 in cash today will only be worth around $8,600 five years from now assuming 3% inflation. Essentially, you lost $1,400 by doing nothing. Here’s how to make your money work for you:
Step 1: Determine how much cash to keep on hand for your monthly expenses, emergency fund, and home improvement projects, and then put most of it in a high yield savings account. By moving your money out of a brick and mortar bank, you are going to get a better rate. Some online savings accounts have a 1.4% rate, which is more than four-year CD’s (1.24%). Check out www.bankrate.com and www.moneyrates.com for competitive rates. You want to have access to your money, but having it one step removed from every day spending is good. You are less tempted to make unscheduled transfers to cover a bigger than expected shopping spree. Make sure the bank you select is FDIC insured.
“Time is money,” is something I say when I am trying to get my 4-year-old daughter to hurry up and do something. Today she asked me what it meant. I paused and thought for a few moments. I told her it meant that we have a lot to do and have to move quickly to get everything done. She seemed happy with this response, but it got me thinking about valuing time.
First, if you are gainfully employed your paycheck likely lists your hourly rate. Is this the value of an hour of your time? Hopefully you have a very high opinion of yourself and think your hourly rate undervalues you. So, why don’t you ask for a raise? In this economy you probably feel like you need to keep quiet to keep your job, but I think this is incorrect. Now is the time to show your value to your employer or clients, and to yourself. Life is short, and if you don’t ask you don’t get. (I heard this from a motivational speaker when I was 23 and it has stuck with me!)