Where To Put Your Savings
The dollars we have freed up from the budging and review process need to be put in an account to start our cash reserve to cover all expenses for at least ninety days.
OK, we have done budgeting; reviewed car and home owners insurance; analyzed sources of income and payroll deductions; and how money is spent. When do we get to the fun part, saving money?
A credit union is a non-profit corporation. Each member is a share holder and has a checking and savings account. The profits covers operating expenses and the excess is returned to the share holders. The savings account rates usually a little higher, the loan rates a little lower, and credit card rates a little lower than for profit banks. The accounts are insured up to $100,000 by the National Credit Union, Administration, an agency of the federal government.
A bank is a for profit corporation. The owners are stockholders and receive dividend from the profits of the bank. The interest rates paid on savings are lower, the interest on loans and credit cards are a little higher than a credit union. Banks usually have more fees for services. All accounts are insured by the Federal Deposit Insurance Corporation up to $100,000.
Once the cash reserve has ninety days of expenses make an application for a mutual fund to invest additional funds for a higher return potential.
A mutual fund is an investment company that sells its shares to investors who in turn take the proceeds and buy individual securities in the market. The expenses charged for this service vary but an amount below 1% is a fair rate. If the turnover in the stock portfolio is higher the cost will exceed 1%.
One type of mutual funds is a loaded fund. These funds are sold through registered representatives of a broker dealer and a load (charge) of 4-6% is assessed against the money when it is invested. These funds usually have low distribution expenses (12b charges). This fee is divided between the investment company and the registered representative.
The second type is a no-load mutual fund. These funds are sold by the investment company direct to investors and do not pay commissions to a broker-dealer. This means advertising and distribution expenses the (12b charges) assessed against the fund are usually 1-2% higher than loaded funds.
Mutual funds can be regular investment or for retirement funds. In a regular investment, you can select from funds that have different investment objectives. This is explained in a fund prospectus and is different with each fund. When you sell some or all of a fund and transfer to a different account in the same family of funds this is considered a sale for tax purposed but does not require a new fee to be paid in a loaded fund. These funds have minimum deposits and minimum free standing balances. A monthly investment can be set up by a draft from your account on a monthly basis. Now we're finally getting somewhere. How does it feel to be an investor and have a savings account. You can confident that you are doing the best you can with how you have handled your money. The more you make the faster the program grows.
More to come in the next Make Money Work newsletter.
Martin Braddock
P.S If you have any friends or family that may be interested in making money work harder have them contact my
Source: http://ezinearticles.com/
Added: May 16, 2008
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