Many financial experts will tell you it;s a good idea to set aside 6-months savings in a passbook (savings) account at your bank and… don;t touch it unless the sky is falling (they call this your emergency fund or safety net) But is this the smart thing to do… is this the best way to get out of debt and be free…let’s take a look
A savings account pays 2 or 3% less taxes…right? So we need to apply the rule of 72 here to see if this is the best move for us.
Rule of 72 is simply this: divide the interest rate by 72 and you know how many years it takes to double your money
72 divided by 2% is 36 years So $20,000 will turn to $40,000 in 36 years…opps we forgot taxes
2% X’s 30% (tax rate) – = 1.28%
72 divided by 1.28 = 56 that means it takes 56 Years before your money doubles…. pitiful!!!!!!
Lets compare that to an investment earning 8%
$20,000 X’s 46.9017 (the figure for 8% X’s 50 years) = $938,034
So let me ask you this… what would you rather have in 50 years $40,000 or $900,000 dollars?
You lose a big chunk of money when you stock pile money in a savings account… and it’s not necessary at all.
There are much better get out of debt solutions.
If you have an IRA, 401K you already have a safety net… you can loan against it any time you need cash. If you don’t have an IRA or 401K, you can take out a home equity loan on a checkbook that will not fund until you write the first check. You’ll pay only processing fees for the loan (no interest unless you write a check)… then , put the checkbook in the safety deposit box and forget you ever saw it. You’re emergency fund is sitting there quietly waiting for you [if you ever need it]. But in the mean time you’re $20,000 (which used to site earning 1.28% in an emergency fund) is free to go to work and start earning that $938,000 or more.
Make sense?
Making your money work for you is about getting all you can out of it… remember the financial institutions are there to help… but… there’s nothing they want more then to have you park your money and let it sit while they manipulate it for 50 years… it’s how they AND NOT YOU get rich.
Would you rather be debt free or rich? So let the bank hold the note on an empty loan you’re never going to use and use your money to enrich your life… the one with the biggest pile of money wins debt free or not.
Your comments….
C-YA
Perry
