May 4, 2011, 6:00 am

Where Are You Keeping Your Money?

by: MD    Category: Financial Planning
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Where You Can Store Your MoneyIf you’re finally making real money for the first time in your life, you’re likely considering the different options for where you should be keeping your money. You’re interested as to what you should be doing with your new found income.

Where can you store your money? I wanted to go over the five most common options for where you can keep your money now that you’re making more than ever before.

Savings account.

Unless you have a ultra high net worth, the simplest and safest option for storing your money is in a savings account. You can easily find an online savings account where you can transfer over a certain amount of money off your paycheck every payday. This way you’ll earn more interest than by keeping your cash in just a checking account.

Pros of a savings account:

You can sleep at night knowing that your money is safely stored in a savings account. When your money is in savings you can go on with your life and be very passive with your money management. This plan is ideal for those of us that place higher value on other things in life and just want to save some money up without really thinking about it.

Cons of a savings account:

You earn very little interest on your hard earned money. It will take you much longer to accumulate any real wealth. With a savings account you’re not taking the chances that you can get away with in your 20s. As a young professional you can handle a little more risk because you likely don’t have a family or any real responsibilities.

Stock market.

If you feel that leaving your money in a savings account is just too boring for you, then you might want to try your hand at the stock market. Just remember that you’ll be taking on additional risk and anything can happen. You’ll be smiling when the stock goes up. On the other hand, you might be crying when the stock price tanks due to general market issues.

Benefits of the stock market:

You have the potential to earn money on your money. I can only say that over the years I’ve been fortunate enough to make some decent stock purchases that earned me much more money than I could have earned with a savings account. If you know what you’re doing and you take the time to conduct your research, you can make a few wise investment decisions with the stock market.

Setbacks of the stock market:

You take on much more risk. If you start investing in small start-up companies you’ll be taking on much more risk than usual. There’s the potential to earn more money, but with this potential comes more risk than most can handle. This risk will lead to lots of unnecessary stress. You also have to keep in mind that investing in the stock market can be very time consuming. You need to track the companies you own shares in and the surrounding market just to stay on top of things.

Real estate.

After saving up for a while it’s going to get tempting to purchase a home or a condo. It has been ingrained in us to think that renting is “throwing money away.” This leads us to thinking that buying a piece of property is just the next logical step in growing up.

Pros of real estate:

You’re investing your money in an asset that will likely appreciate over time (depending on where you live). A home shouldn’t be viewed as an investment, but for some of us it could be the best financial decision that we ever make. For many young professional a home is also a “forced savings tool,” in the sense that it holds you accountable for your finances.

Cons of real estate:

You totally kill your flexibility when you’re stuck with a home mortgage. You’ll be stuck with making your mortgage payments. This means that you’ll have less money for fun, you might have to stay at a job that you really don’t care for, and you might not be able to travel as much as you had planned. You need to keep these cons in mind as the euphoria of owning a home starts to hit you.

Experiences.

If you’re like me then you believe in spending your money on experiences. I love to save up for different trips and events, as opposed to filling my home up with crap. I really enjoy going on many trips throughout the year. This forces me to work harder and to find more ways to save money.

Positives of experiences:

You get to hold on to less crap and you can see things that you normally wouldn’t have. When you travel to a new part of the world you broaden your horizons and you see things that you never thought existed. New experiences really open up your mind and change your perspective on most stuff.

Negatives of experiences:

It may never feel like you’re getting your value in money. I personally have learned to treat every trip payment and cost of an experience as a sunk cost. Meaning that once I pay for it that’s it. For some the thought of how much they spent on the experience will always linger on their mind. This in turn creates a feeling that the experience never reaches its full potential in value.

Spend it all.

It’s not rare for those new to the workforce to spend all of their money. There’s so many options out there for spending money that makes it really easy to stay broke. At times it also might feel like saving money simply isn’t even worth it.

The good side of spending your money:

You don’t have to worry about saving your money and always feeling guilty. When you’re young you don’t have to stress as much as saving up money. It’s not recommended that you frivolous spend all of your money. At the end of the day it’s your money and you can do whatever you want with it.

The bad side of spending it all:

You have nothing to show for your hard work. In my opinion it doesn’t make much sense to put so much effort into your work only to have nothing to show for it at the end of the year.

It’s time get the readers involved: Where did you start storing your money when you first started to make real money in life?

(photo credit: dramatic)

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Comments

Hi MD,
Besides being able to say, “Hey, look at all my stuff!” I’m impressed that you were able to come up with any benefits to spending all your money. Obviously no one with any financial sense would ever recommend that method of money storage, but I still find it amusing you included it!
Thanks for the read,
Timothy

Good ideas! I like the pros and cons element too. I would add that the usual time line for investments such as stock, bonds, mutual funds and real estate is 5 years. If you need the money in the next five years you will be more limited in your choices.

Regarding the cons to a savings account, if you are accumulating wealth AT ALL, then it’s not through the interest you earn…it’s from depositing more money. A savings account is just a way to lose a little less money than putting it under your mattress.

@Wealth Artisan I wanted to include everything. Spending all of your money isn’t a great option by any means, but it’s the harsh reality for many young professionals.

@krantcents That’s true. You kill your flexibility when you invest in real estate and stocks. We should all keep that in mind whenever we invest any money at all.

@Justin Thanks for that point. The interest is absolutely nothing compared to the actual money that you deposit.

I agree with Justin. Although interest does not begin to make up for inflation, at least a savings account is incredibly liquid for something you will be spending on in the next 6-12 months.

i love the rationale of spending it all 🙂

i am a strong proponent of both diversity and multiple streams of income, so i do it all except savings. instead I have no penalty CDs

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