Finances, savings, dreams

amother

Babypink

Tue, May 12 2015, 11:35 am

So we area young(ish) couple with limited finances. Barely started our careers, but also our family. I know expenses only go up. I would one day like to possibly own a house and definitely will have to retire one day.
What are some ways to save up? All extra money we have goes to savings. No debt, BH. We work hard not to. We don't spend lots on extras.
But the savings account gives no interest so it's not really adding anything to our accounts...

amother

Babypink

Tue, May 12 2015, 11:46 am

Iymnok wrote:

Research different investment options at different banks. Try to keep it in an account with some interest. 2% or so

What banks do you know have this? I don't want to switch our checking because it's so convenient and we have a savings though them so we can transfer as needed. But is it smart if we have a second savings account that we don't touch and just deposit a little as we have available?

doctorima

Tue, May 12 2015, 11:47 am

I wouldn't invest in individual stocks, because you can lose a lot if you don't know what you're doing. But the bank is also not an option, earning nothing. You should put your money in 1 or 2 index mutual funds from Vanguard or Fidelity, which will let you follow the market without as much risk as individual stocks, and without needing to know too much. If you're uncomfortable doing this, shop around for a CD that pays around 2%, which is better than nothing.

amother

Orchid

Tue, May 12 2015, 11:49 am

When I was born, my parents started a schwab account for me, and transferred it to me when I hit 21. I have used this as my main bank account, and money from work and all our wedding money went into it. I get paid into that account, and any money that family gives for the kids' birthdays etc is in there. It's technically a brokerage bank so I'm getting interest on there, and we recently invested it through there so we're making some extra money. I know literally nothing about finances but I can take a look at what we did exactly (or ask my husband!), if you want.

torquoise

Tue, May 12 2015, 11:50 am

If you are making very little money, and still paying taxes on each paycheck, your tax return should be significant. We put that into savings, and after about 7 years it added up to a minimum down payment.

Other ideas - if you are eligible for food stamps, apply. It saves a lot on expenses.
If not eligible, cook with legumes. Chickpeas, beans, split pea soup are a good source of protein to replace chicken or dairy some nights of the week.

Iymnok

Tue, May 12 2015, 11:52 am

You want your money to grow. Right now it's as good as hiding it under the mattress. It needs to be where you get some returns. Ask at your bank for options and shop around. Or you can hire an investor to work the market. They often average 5-7% on safe stocks. You can get more with higher risk, but it's higher risk.
I see no problem using multiple banks.

Mrs Bissli

Tue, May 12 2015, 3:07 pm

OP, what is the timeframe you think you might need the money
(e.g. for downpayment for a house)?

If you think you may need the cash within 3years, I'm more
inclined to recommend bank savings account or money market
funds. If you have longer time horizon (say 7-10yrs or even
longer for retirement), it's a good idea to consider index-tracker
stock funds. (For longer period, stocks tend to outperform and
provides better protection inflation).

Currently interest rates are super low, but there would come
a time that Fed will have to start raising interest rates
(albeit very gradually). For this reason, I won't commit to
CDs with long maturity.

Last edited by Mrs Bissli on Wed, May 13 2015, 4:04 am; edited 1 time in total

amother

Babypink

Tue, May 12 2015, 8:22 pm

torquoise wrote:

We do all that. I also shop sales etc. this isn't about finding spare cash or how to stretch the budget. It's about really low risk (and I know that means Low returns/interest but we can't afford too much risk) ways of investing or making it grow...

amother

Babypink

Tue, May 12 2015, 8:24 pm

Mrs Bissli wrote:

OP, what is the timeframe you think you might need the money (e.g. for downpayment for a house)?
If you think you may need the cash within 3years, I'm more inclined to recommend bank savings account
or money market funds.
If you have longer time horizon (say 7-10yrs or even longer for retirement), it's a good idea to consider
index-tracker stock funds. (For longer period, stocks tend to outperform and provides better protection
inflation).
Currently interest rates are super low, but there would come a time that Fed will have to start raising
interest rates (albeit very gradually). For this reason, I won't commit to CDs with long maturity.

Thanks! Can you explain the interest rate thing with CDs for me? Newbie. Total newbie here...

Mrs Bissli

Wed, May 13 2015, 4:06 am

CDs come in different maturities, and the longer you leave, (marginally) higher interest you get.
However, if you decide to buy/invest a 10yr CD, your interest rates are locked at that rate.
So not a good value if interest rates start going up AFTER you've committed to a long-dated CDs
because you can't cancel it and switch for a newer, higher-yielding CDs.

amother

Babypink

Wed, May 13 2015, 8:53 am

Mrs Bissli wrote:

So the general consensus I gather is that one shouldn't lock thmselves into a long term thing but rather short term now until % go up? I looked into some local banks and they have incredibly low %. But .05 is still better than the measly .01 we get in our regular savings account. I did some number crunching and it could be a small but nice amount of $ we arent earning now.
Are CDs risk free?

shoshanim999

Wed, May 13 2015, 11:15 am

Let me cut to the chase and give u the real answer.....u say u would like to buy a house and retire one day. Sounds like a good idea. The truth is that even if u find a bank thats offering 2% interest its not going to make a difference in your big financial picture. Did u ever meet someone who is financially secure and when asked how they got there responded....We invest in a bank that pays 2%??? The bottom line is that to live like a mentch and have financial security you have to have a job that earns alot of money. Is that oversimplifying? How to get that job? I'm not sure. Or I guess you can have wealthy parents who hand it to you, but its gotta be one of of the 2.

amother

Jade

Wed, May 13 2015, 11:27 am

amother wrote:

We just invested a large chunk of our savings with a property management firm. We are considered "money lenders" and are getting a 12% return on the investment. When we want the initial investment back, we just need to give a 3 month window. It is almost completely risk free. This might be something good to look into.

I do know people that lost a ton of money this way. Should the real estate they are working in not suceed or the area changes the firm can take a huge hit. I know someone who was a private lender for real estate and when the stock market crashed his borrowers could not pay him back. He lost millions. Your success is is in the success of the company you lent the money to. It is certainly not risk free!!!

Mrs Bissli

Wed, May 13 2015, 1:56 pm

amother wrote:

Hahahahaha. Just to put things into perspective, Russian 5year government bonds are yielding about 11% (and remember they are under international sanctions). Remember there's no such thing as high-yielding financial products that are low-risk. The description sounds very much like either sub-prime property REITs (riskier because either it's less diversified and/or lent to people with low credit), or riskier mortgage REITS (it's riskier because the operator borrows short-term and lends long-term so more exposed to relative distortion between short-term vs long-term interest rates). To get that kind of return, one needs to put more leverage which super-charges returns and risks. This is not something you want to look into.

If you're a fan of REIT, you can either buy shares of publicly listed REITs or most funds like Vanguards have REIT ETF (exchange traded funds). Most REITs should be yielding around 4% plus, but obviously like shares they have ups and downs and their returns and capital are not guaranteed. (Actually REITs do less well or go down historically when interest rates start going up).

The other amother, CDs are technically risk free as most qualify under FDIC deposit insurance scheme. But you do need to check before you buy. Money Market funds are alternatives--some sold via banks are likely to be under FDIC. Their returns are not guaranteed, prices fluctuate (though historically principal loss is much lower probability than shares), returns are higher than CDs but below equity. Good liquidity with short notice period for withdrawal. Many people use it as a place to park money.

amother

Babypink

Thu, May 14 2015, 8:43 am

Mrs Bissli wrote:

Thanks... Will need to talk to DH. I know CDs arent a high % but the way I see it- better than we have now, with no risk (FDIC at my bank). Won't buy me a house but it is still adding to our cash. When we can be less risk averse we might try something else...