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Previously, I have discussed ways to help save money and some ways to help you continue to manage . But once you have overcome those hurdles what do you do with it? Now that you have saved a little where is the best place to put it? And what do you do with it once it is there? How do you know which place is best for you?
1) The Stock Market
The Stock Market is, and will always be, the #1 place to save your money. I know, trust me, I know – the Stock Market has risk. Sometimes a lot of risk. And many of you are reluctant to put the money you do save into a risky roller coaster ride. I sympathize with your reluctancy. I have watched my hard earned dollar start to disappear and believe me – it is a gut wrenching feeling. Historically, the stock market has an annual return rate of 8%. Yes, 8%. I know initially 8% may not seem like much but multiply that by 20 or 30 or 40 years and the power of compounding interest over the course of those years. Now, 8% starts to look a little better. In fact, a lot better. Trust me, it’s the best treasure chest you can ever put your money in. The Stock Market is risky – there is no denying that. But unless you are on the cusp of retirement there is no greater way to grow your savings. Even in retirement I still recommend you have some exposure to the stock market. It is just too powerful to not have your money there.
Individual Retirement Accounts are one of the best ways to put away savings if the savings is for retirement. There are a couple different types of IRAs available to you. A Traditional IRA or a Roth IRA. A Traditional IRA is a simple savings vehicle that allows you to place pretax income, up to a specific annual amount, towards investments that can grow tax-deferred. Which means you are not taxed on capital gains or dividend income. A Roth IRA works the same way however, you may make your contributions with after tax dollars and you are not taxed on capital gains – even after you begin to withdraw your money (as long as a few certain requirements are met). For retirement savings, a Roth IRA is by far and away the best savings option.
3) Savings Account
A simple savings account may seem like a passive option for some of you looking for advanced methods of wealth generation, but hear me out. If you study see of the wealthiest people on earth every single one of them will tell you that one of the main sources of their vast wealth came from nothing more than “just saving”. I like Benjamin Franklin’s analogy – “Beware of little expenses; a small leak will sink a great ship”. When asked about the difficulties of become wealthy, Jeanette Bajalia, the founder of Women’s Worth said “I think the harder part is having the discipline to save.” A savings account gives you a place to put your money so that you can watch it grow and see the progress. So many people that I talk to about finances have a hard time saving because they cannot see the money grow. We as humans like seeing our work grow into something tangible. Looking at the balance in your savings account at the end of each month and seeing it grow is a great feeling.
4) Gold & Silver
Granted, Gold & Silver have been painful to own in recent times. Over the last year Gold and Silver have tumbled down over 15% and 23%, respectively. But what have gold and silver done over the last 15 years? Silver is up 194% and Gold is up 312%. Not too bad of a savings grower after all. Gold & Silver historically have been a great hedge against inflation, deflation, and currency devaluation. As the value of the US dollar goes down, the value of Gold and Silver should rise. Silver is also more diverse than just a mined commodity. It is being used in jewelry, electronics, coins, and is becoming more popular as a source for Solar Power.
5) Cash (Even if it’s under your bed)
Cash is the most boring and old fashioned way to save money but it is still effective. As the Stock Market goes down or Bond Yields start to crater – cash socked away under your bed maintains every cent it was worth when you put it there. Cash also has a psychological benefit. Watching your wad of cash get larger and larger as you add to it over time will motivate you to continue adding to it.
Ultimately, a combination of all of these would be the optimal way to begin to grow your wealth in a safe and well diversified way. Most of us don’t have the time or want to worry about keeping track of all this. That is absolutely normal (and perhaps more sane). Start off small. Choose one of these methods and just begin to put all of your money there. Either way you will be saving wisely and you can have something of value to look at and admire. Admire your savings. Be proud of it. And be proud of yourself. .