|
21 Comments
 Many people fail to see that skills fade, but assets are forever.
They don’t know their entire financial education in their lives is completely WRONG! Too many people believe that a good job, good skills, and a positive attitude will make them great wealth. The problem is that it just doesn't work that way. People who make an hourly wage and an annual salary cannot build wealth. This is because their money doesn't work for them, and instead they work for their money. This idea keeps them from understanding that the only way to build wealth is to invest in multiple sources of income that you don’t have to work for, but instead build yourself or purchase from someone else. Another misconception of multiple sources of income and passive income is that people assume government and financial institutions offerings such as the stock market, CD’s, and many other financial instruments are passive income. Most of the time however, unless it is a note or bond that pays you regular interest. It is not actually passive income or a stream of income. As a stream of income or passive income is income that you make every day, every month, and every year continuously as cashflow. Stocks and the like only make you money on the sale and never anything in the meantime. Meaning they don’t ever actually cashflow. For example, it is the same as purchasing a piece of fine art and hoping that it appreciates the longer you hold onto it. Which is risky and locks your money up from better uses. Real Estate as an Investment Real Estate is the King when it comes to creating people wealth. No other offering has the traits and abilities like real estate does. It is constantly appreciating and gaining value. It is always in demand because people need a place to live. And most important of all, it is a real asset that isn’t going anywhere soon. Allowing you to borrow against it as collateral and even to write off all expenses and costs associated off on your taxes. Now let’s not wait a moment longer to get into Real Estate as an Investment. Real Estate You Can Buy as Investments There is so many ways to invest in real estate and the major differences comes to how much capital you will need to put down to purchase them. This could be as little as $40,000 -$50,000 to buy a condo outright, to only $10,000+ to purchase a $100,000 single family home, or to as much as $20,000-$30,000 to purchase a multifamily home (2-4 units). All of which are Residential and can be easily financed. Once you get past 4 units, small office buildings, and industrial properties. You’re going into commercial territory and have a lot more hoops to jump through as well as have to start working with commercial lending which can require sizable amounts of capital before they will lend. In the rear, is my personal favorite of mobile homes and parks. Which are hard to sell, but can cashflow in all sorts of amazing ways from lending on the mobiles themselves to charging them for renting the use of the land. All of which is taxed as land which is the cheapest tax rate you can have on property. · Condos/Flats – Condos and flats are some of the best to buy for cashflow as they give the best cap rates. The only issue comes on the resale as many can be hard to finance as an investment property, preventing a large portion of the population from being able to purchase them. · Single-Family Homes – Single-family homes are easy to rent, easy to sell, and easy to finance. · Duplexes/Triplexes/Quads – Small multifamily properties (2-4 units). These property types combine the financing and easy purchasing benefits of a single-family home with the cashflow benefits and less competition found in larger investments. · Small Apartments - small apartment buildings are made up of between 5-50 units, they can make great cashflow, but can be very illiquid on the resale. · Small Commercial Office Space – Buying small commercial buildings and renting out office space to business professionals. · Industrial Properties- Manufacturing, warehouses, distribution centers, etc. · Mobile Homes - inexpensive way to enter the world of real estate investing and can also experience significant cashflow. · Mobile Home Parks - The entire park in which mobile homes are situated on can also be bought and sold. Rent the individual lots to mobile home owners, and as well as have corporately owned and leased ones. Strategies in Finding Investment Properties Just as there are a million ways to skin a cat, there is a million ways to find properties for investment. Of the many ways to find the properties for investment. The most common ways are to find the owner directly and give them a cash offer, to find properties that are owned by a lender or bank that they want to get rid of at a discount, or purchase a lien on the property so you can foreclose on the property yourself.
Strategies in Buying, Renting, and Selling Properties: When you finally have the property in your grasp, there are many techniques you can use to maximize your return. Some properties are great for buy n’ holding. Meaning you buy them for cashflow, but are expecting to also make a sizable return on the resale due to appreciation. Next up is Fixing N’ Flip/Hold, which is finding properties undervalue and fixing them up to either hold onto for cashflow or to sell immediately for instant profit. Then there is Turn-key-Investing, this is where you find the property, turn it into a profitable cashflow and sell it as a source of income to a big fish investor. For Big Commercial, there is NNN leasing that entails having the company renting the property takes care of all the trimmings of the property and pays you for leasing the space. Another Buy N’ Hold strategy that can make decent money is to turn your Buy N’ Hold property into a Vacation Rental and charge 3x as much than a normal lease. Then there is hard money lending, where you finance others in their fix n’ flips, buy n’ holds, or primary residence.
How to Finance: Financing is readily available to anyone who has a cash for a down payment. Below is the major ways you can finance your Real Estate Investments.
Conclusion: If you have the mind for real estate or want to hire someone who does (Click Here). Then you should forego a large portion of your portfolio to invest in real estate. It easily as one of the highest returns than any other investment in the world, the only caveat, like anything else, is that you need to do it right to be successful.  Of the many offerings of the investment world from banks to governments, the sexiest and most publicized is corporate ones. Specifically Stocks, Mutual Funds, and ETFs. Each has their own flavors of the month, but they are all simply “equity in a company”. Most are publicly traded and on the largest stock exchanges. There are also private stocks from privately owned companies you can buy, but they have the issue of not having as liquid of a market as publicly traded stocks because the trading of the stock is private as well. Now you have to understand stocks (equity in the company) are the base for everything else in corporate offerings as stocks make up Mutual Funds and ETFs. Understanding this will allow you to understand our list today.
Corporate/Brokerage Offerings Corporate Stocks Corporate stocks represent ownership in a company, the stock’s price is a representation of how valuable it is according to public opinion. If a company is expected to not do as well as hoped, stock prices will go down as people sell off them off. If the company does a lot better than expected, then the stock price goes up as more people buy them. If there is bad news about the company, then the stock goes down. If there is good news about the company then the stock goes up. This is the way of stocks. Therefore, it’s not a bad idea to think of the prices of stocks as the expectations of the company. Strong prices tell you people expect it to do well while weak prices mean the opposite. And if you disagree, you can buy the stock in expectations that the price will go up or you can short the stock in expectations it will go down. Shorting simply means you’re borrowing shares and selling them, expecting they will be cheaper to buy back in the future. Not only can you short stocks, you have a million other contracts you can have to make money such as options, which is a contract that sets a price that you can either buy or sell a certain stock for at a subsequent time. Pros · Higher Returns - Stocks typically have the potential for higher returns compared to other types of investments over the long term · Pay Dividends - Some stocks pay dividends, which provide extra income or used to buy more shares Cons · Volatile - Stock prices can swing dramatically from high to low meaning your gains today may be gone tomorrow based · Uninsured – stocks are the unsafest of all investments as they can become worthless quickly based on investor opinion and if the company goes bankrupt Corporate Bonds Next up is corporate bonds. Corporate Bonds is debt issued by a company, and are very similar to government bonds except they aren’t as safe. But because they aren’t as safe, they usually pay out more interest than government bonds. Because when investing, the interest on a debt represents the risk of the investor, called a risk premium. Therefore an investor should be paid more for taking on more risk. Thus, the more creditworthy the company, the less interest it will pay because of the lesser risk. This is not only how corporate bonds work, but all loans from mortgages, auto-loans, and personal loans such as payday loans and even pawn shops. All loans’ interest is calculated based off of how risky the borrower is. The more likely you expect someone not to pay you back, the more interest you will charge to compensate you for taking on the risk. Pros · Pay Higher Interest - Corporate bonds usually pay more than government securities, money markets, and CDs, especially if they are risky bonds Cons · More Risk - The Company that issued the bond could suspend interest payments, or even go out of business · Commissions - You may have to pay a commission to purchase corporate bonds and affecting your ROI · Penalty for Cashing in Before Maturity – cash out before the bond matures, and you may not get back all of your original investment. Brokerage Offerings Money Market Funds Money market funds combine a checking account with a mutual fund. When you put money in a Money Market fund, you have all the benefits of a checking account such as high liquidity and the ability to write checks. But while your money is in the account the fund invests it in highly liquid, safe securities such as certificates of deposit, government securities, and commercial money. Meaning you’re making with your money, but because its invested in highly liquid assets that if you want to use your money, you can. Pros
Bond funds Bond funds are mutual funds that invest exclusively in Bonds and purchase large swathes of different bonds to diversify and protect your portfolio. Pros · Diversified – owns a little bit in every bond market to minimize risk from one or two bad bonds · Balanced Interest – Because the bonds are in many different markets that have varying interest rates, you can have a higher interest rates than just buying only one bond in one market Cons · Fluctuating Yield – being a mutual fund, the yield will change depending on interest rates, buy/sell costs, and other factors that are outside your control. So you never know how much you are going make until you cash out · Management Fees - You will pay ongoing management fees, which is fine as long as they make more money than they charge you, as some of the best managers will take all your profits for themselves · Commissions – the bane of the financial industry, paying someone to sell you a certain fund. Whether or not the fund is any good for your goals Mutual Funds Mutual Funds come in a variety of flavors and each have their own risks and returns. But essentially, you just have to think of them as a basket that holds multiple investments. This basket could have individual stocks and bonds in it or can even have other mutual funds or ETFs. The idea behind them is that you pay someone a management fee to fill the basket for you so you don’t have to do it yourself. And of the many flavors, here are the major six you will see on the market. 1. Fixed income funds - These funds fill their basket with investments that pay a fixed rate of return. Usually, government bonds, investment-grade corporate bonds, and high-yield corporate bonds. The purpose of these funds for most people is that they want a guaranteed return on their money so they can sleep well at night. 2. Equity funds – Equity funds fill their basket with stocks. Unlike fixed income funds, these funds aim to make more money over time by taking on higher risk. These could be growth stock funds that make their money on investing in companies they are expecting to grow quickly over the next few years to sell for a hefty profit at the end. Income funds that pay large dividends and are for people who want cashflow while they own the fund. 3. Balanced funds – These funds fill their basket with both fixed-income and growth stocks to try to capitalize on the benefits of both. 4. Index funds – To understand an index, you have to think of it as a very, very large mutual fund that covers a lot of companies in an industry. Although the index is made up, their purpose is to show how well a specific industry is doing within the economy. This could be blue-chip stocks that represent the largest and most established companies, the tech industry that is populated with many tech companies, and any other index of companies that can make up an industry. Therefore, the mutual fund that follows an index, fills its basket with stocks that best replicate the return you’d get if you had purchased all the stocks in the index. (Usually cheaper because management doesn’t have to work as hard) 5. Specialty funds – these funds could also be called “Niche Funds” as they focus on their basket with specialized investments such as real estate, commodities, or any other niche they specialize in. 6. Fund-of-funds – These mutual funds could be called “Meta-Funds” as they invest only in other funds. Essentially, they fill their basket with funds they believe know what they are doing and getting great returns. Piggybacking off their success. Pros · Don’t Need Plugged In – if you have ever traded stocks, you know at times you have to be plugged in 24/7 to make sure your investment is doing well. This includes reading quarterly and annual financial reports. Deciphering what the company is really saying and making a decision to hold or sell. Putting your money in a mutual fund makes all that the manager’s job, leaving you to enjoy your free time. · Different Flavors to Choose from – Mutual funds have an option available for nearly anyone’s investment goals. If you want fixed-income, there is a mutual fund for that. You want to take on higher risk for a higher return, there is a mutual fund for that. If you want a combination of the two, there is a mutual fund for that.
Cons
ETFs ETFs (Exchange Traded Funds) are exactly like a mutual fund in that they are a basket of investments such as stocks and bonds and are managed by a manager who decides what those investments will be. The only major difference is that an ETF is treated like a stock in the way it is bought and sold compared to a mutual fund. As a mutual fund cannot be bought and sold, it can only be invested in or out. This means that an ETF can be bought and sold on the stock market, can be shorted and optioned, and anything else you can do with a stock. Pros · More Readily Traded - Traditional mutual fund shares are traded only once per day after the markets close meaning you can’t speculate on the fund to go up or down in price for a profit. While ETFs are traded all day like a stock. · Cheaper than Mutual Funds - streamlined compared to mutual funds as the costs are put on the brokerage instead of the investor. Making less overhead that equates to more investor returns as they don’t have the legal requirements of having a call center for questions or the need to send out monthly reports. · Tax Benefits – mutual funds have more capital gains taxes than ETFs because mutual funds have to pass on the costs of every trade before a year to the investor, while ETFs are only taxed when they are sold. · Quickness of Buy/Sell – because it’s sold as a stock, this makes it easier to buy and sell to gain exposure to certain industries. You could get the same result by having a mutual fund, but because mutual funds are designed mostly for long-term investors, it can be a process to get in and out of them. Cons · More Expensive than Anticipated – because the costs are baked into the stock, it can be hard to tell if you’re really getting a deal or not. · May not make sense for the Long-Term Investor – due to the nature of how it is traded, it may not make sense for a long term investor who wants to hold onto his investment for years to come. The benefits of being a stock are not utilized for some long-term investors ADRs The last offering from the brokerage and corporate world is ADRs (American Depository Receipt). This were introduced as an easier way for U.S. Investors to invest in foreign companies. As the bank would purchase a large lot of shares from the company, bundle them into groups, and reissue them in US currency. Although you don’t have to invest in ADRs and you can invest in foreign companies yourself, you’d have to set up a brokerage account and watch the exchange rate as you move in and out of currencies. Making things complicated quickly. Pros · Don’t Need Foreign Brokerage Account – the biggest pro of ADRs is having the ability to buy stocks in foreign countries with your normal brokerage account. This takes the hassle of having to set one up in the country you want to invest · Automatically Calculated Exchange Rates – because the bank calculates the exchange rate for you, you can follow the prices of the stock based on your currency and not the foreign companies · Diversify your Portfolio – allows you to expose your portfolio to other countries and companies that can increase your return. Cons · Political Risk – with the purchase of an ADR, you now have vested interest in the politics of that country because the government could decide to expropriate the company or your investment. · Exchange Rate Risk – may have to be mindful of the foreign companies’ currency, although your ADR is calculated in your currency, strengthening and weakening of the foreign currency and affect the returns you receive. · Inflationary Risk – if the government is very poor with their finances, they may print more money and cause inflation. High inflation can make the company becomes less and less valuable each day and your investment worth less and less. Conclusion There you have it. Here are the most common offerings from the corporate/brokerage world. Being they are backed by private organizations and individuals, they are the riskiest of all investment as they are not protected from scandal, bankruptcy, or bad business practices. Meaning you need to be careful and understand that with the higher return your expecting, carries with it a higher risk of losing your investment. With that said, INVEST WELL and with DUE DILIGENCE. As they can only get it past you, if you let them.  Thinking Like a Millionaire: The 3 Financial Types of People in the World
There are 3 types of people in this world when it comes to finances. They are the Perpetually Broke Person, the Well-Off Person, and the Highly-Wealthy Person. The Perpetually Broke Person never has any money and ultimately lives paycheck to paycheck. This is sometimes due to economic hardship, but these people exist every pay scale as the Perpetually Broke Person is always spending their income immediately after receiving it, and how much income is less important than how quickly they spend it. This is mostly on consumer goods such as clothes, electronics, and other items that can empty a bank account quickly. Another aspect of the Perpetually Broke Person is that they are amazingly good at giving away their future wealth by getting loans on things they don’t need or can’t even afford such as new cars, home improvement projects, and vacations and getaways. The Well-Off Person is the next step up and does much better financially then the Perpetually Broke Person as they know how to manage their money by saving it for emergencies and big purchases. They also have good credit scores because they pay their bills on time and know how to take out loans responsibly. This allows them to grow wealth slowly and live well for most of their life. However, because the Well-Off Person usually is dependent on their job, they can find themselves in dire straits if they are laid off, injured and can’t work, or have other costly events that dry up their savings. This mostly due to the fact they are afraid to invest in anything, but sure things. The Highly-Wealthy Person on the other hand knows how to manage their money by having an emergency fund, has a high credit score by paying their bills on time, and know how to take out responsible loans just like a Well-Off Person. The only difference is that a Highly-Wealthy People know how to make their money work for them with or without them. They understand these 3 Principals of Money. Principal One: You can’t do everything yourself. When creating wealth, the most important principal you need to take to heart is to understand you can’t do everything yourself. Which is why when you’re creating money with your money, it’s important to know you need to delegate a lot of the work to other people. Especially in hiring people. For example, in real estate you hire contractors to do your fix n’ flips and hire a property manager to manage your buy n’ holds. You do this because even if you know how to do it, it doesn’t make any sense for you. Why focus on only one or two properties when you can have ten working for you by having the right people in charge. In stocks, why would you learn how the market works and plug yourself in when there are people you can hire to do it for you 24/7. Instead, enjoy yourself. Principal Two: You have to take calculated risks. Principal Two simply means you have to risk money to make money. If you don’t risk anything, then you can’t make anything. This is the pinnacle of investing and what keeps many people from doing it. As they are more worried about losing a hundred dollars on a bad investment and would rather spend a hundred dollars on something worthless they don’t need. This makes many investors afraid to pull the trigger when investing and fall for the fallacy of the perfect deal. Where they will turn down even the best deals because they believe there will be a better one over the horizon. The only way to overpass this fear of losing your investment, is to embody the concept of Sunk Costs. Sunk Costs are costs that you have sunk into an endeavor that will never pay off and you will never get them back. The idea behind sunk costs is that although they are lost forever, it should not affect your decision in shutting down the investment. If it isn’t going to work, it isn’t going to work and you need to accept beforehand that the funds spent were a calculated risk and there loss was expected to happen if it failed. Accepting sunk costs will allow you to avoid throwing good money after bad. Principal Three: If you can’t understand it, then don’t invest in it. Too many people get into the hype of something. They listen to too many experts on the subject. Too many experts on the news. Too many “experts” in their family and friends. And they find themselves putting all their money into something they have no understanding of. This can be from complicated companies, products they use but have no understanding of their business model, and other financial instruments that are hard to explain, let alone understand. This is why for many investors, they need to stick to what they know. If its stocks, stick with stocks. If its real estate, stick with real estate. If it’s a business or company you know through and through, then stick with it through and through. The idea is that you have to have an understanding of an investment, how it works, and its ability to grow in the world we live. This entails having to research the subject, know its past and present, and the major things that can affect it. The only way you can ensure you don’t get screwed is to have at least a basic understanding of what you’re investing in. Conclusion: Knowing what Financial Type of person you are will allow you know where you need to go from here. Knowing if you spend too much money and bust your budget means ou have to create financial discipline. If you are defensive with your money but seem to want more, than you need to start thinking about how to take more calculated risks. If your wealthy, you need to figure out better investments to get higher returns so you can even do more than you ever could have imagined.  Welcome Back to the Second Part of Our Series “Thinking Like a Millionaire”.
Today we delve further into the mind of an investor and learn how the investor thinks differently about money than most people do. As most people feel money is a dispensable item and are too easy to give it away for things they want or value. While an investor uses the same money as a tool. For example, A normal consumer uses money to purchase a vehicle. Some even believe that it’s an investment. However, a car is not an investment because you will never be able to use it to make the money back that you spent. You will never be able to resell it for more than you paid and most likely will get next to nothing when you finally do resell it. Even worse, is when people see a car as an investment. They take out a loan on it, and make a promise to give away their future wealth for a vehicle that will never pay for itself let alone the interest their going to pay on it. (Click here to learn how to avoid Shark Loans) A consumer views a vehicle as an asset and investment. In the same vein but with an investor, A normal investor purchases a vehicle with cash. They consider the gas mileage, reliability, reviews, and resale value of the car to ensure if it’s the best deal for their money and ultimately meets their needs. On top of that, they usually never purchase from a NEW car dealer and instead get it from a certified-used dealer, craigslist with proper inspections, or my personal favorite EBay. In comparison to a consumer, an investor views a vehicle as an expense and liability that can eat money quickly and leave you in financial stress if it isn’t properly purchased. Therefore it’s time to get started and think about money like an investor. Because when you think of money as tool, you begin to understand how to use it to better position yourself in life. If you don’t, even when you make more money as a consumer, you ultimately just spend more money as a consumer. You don’t really change your habits, you simply have more and you spend more like a bigger house, better car, or the NEW ITEM YOU JUST NEED NOW. Instead of consuming with your money, here are some common investments that are offered by the government that are available to you right now. That most don’t even know. Government Offerings U.S. Government Bills or Notes Also known as Treasuries, they are government notes that are backed by the U.S. government. And there are two types, Treasury Bills which are short term-loans that mature in less than a year. While Treasury Notes are longer term and mature after a year and can go up to 10 years. In simple terms, you are giving a loan to the government and they pay interest to you on the loan. Pros: · Safe – Unless the U.S. Government defaults and goes bankrupt (Not very probable) · Commission Free – unlike a lot of investment vehicles they can be purchased directly, without the need of a broker · Tax Exempt – treasuries are exempt from state and local taxes which can help the savvy investor save a lot of money in the long-run Cons: · Better Interest Elsewhere – Good returns, but if you shop around, you may find higher yielding investments that are just as safe such as CD’s, Money Market Funds, and bonds. · Hefty Penalties for Cashing out Early - If you need your money before the security matures, you may not get back all of your original investment. I-Bonds I-Bonds are a Government Backed Bond that gives you protection from inflation by changing the interest rate on the bond semi-annually. They began offering this as many people who buy bonds don’t want to have to keep up with the macroeconomics of the US Economy. Pros: · Backed by U.S. Government - makes it one of the safest bets on Earth · Inflation Protection - Protects your investment against inflation risk by adjusting the payout interest · Manageable Denomination – you can buy I-Bonds ranging from $50 to $10,000. · Tax Exempt/Tax Deferrable – are exempt/deferrable from state and local taxes which can help the savvy investor save a lot of money in the long-run. Cons: · Penalty for Cashing-Out Early - must hold for at least 12 months before redeeming, but if you redeem it before five years, you have to pay a 3 month Returns Penalty. Municipal Bonds Municipal bonds are similar to federal bonds but are issued by state and local governments. They use the money you give them to fund the building of schools, highways, and other projects for the city and state. Used mostly by high-income investors to reduce their tax liability. Pros: · Safe – almost as safe as U.S. Government backed securities · Tax Exempt/Tax Deferrable – are exempt/deferrable from federal taxes and sometimes state and local taxes which can help the savvy investor save a lot of money in the long-run. Cons: · Low Interest Rate – because the taxes are low on municipal bonds, they have much lower interest rates. Which might not make sense unless you’re in a high tax bracket and looking to avoid taxes · Commission–Based - you may have to pay a commission to buy municipal bonds · Hefty Penalties for Cashing out Early - If you need your money before the security matures, you may not get back all of your original investment. If your interested in more, please check out the entire series.  Do you think like a Millionaire?
Well welcome back to “Your Life as a Business”. Where we introduce the First Part of a 5 Part Series on how to make your money work for you and to your first Million. Today we will change your viewpoint of money. Showing you the different ways to make it work for you. By simply summarizing the positives and negatives of each. First off, let’s go over the two worldviews of money and how they differ from each other. The first one is the one most people know because they enact it every day, the Consumer. The consumer views money as a dispensable item that comes and goes, but ultimately is made to be spent. The consumer sees the value of a dollar as a means to get things they want, but not for its other values such as tool to protect yourself and your family or a means to build wealth. Instead, they use it to consume things. The pros of being a consumer is to get what you want when you want it and experience the things you always wanted. However, many times the consumer buys things they can’t afford, are constantly broke, and spend money faster than they can make it. When seeing money as dispensable, it’s easy to fall into the mindset of easy comes and easy go. The other worldview is the Investor. The investor views money as a tool. They don’t see it as a dispensable item to buy things they don’t need, but as a way to make things happen. Such as make more money or as a weapon and shield against the world to protect yourself, your family, and your interests. With this way of thinking, people use money not as a way to consume the “next best thing” but instead think strategically how they can better their lives with money rather than have it control them. Therefore it’s time to get started in “Your Life as a Business’ and start thinking about money like an investor. When thinking of money as tool, you have to imagine the different things you can do with money. Its many facets and uses. Of the many things you can do, here are the most common that most people never know about even though they are available to them every day. Bank Offerings Checking accounts Everyone knows what a checking account is. It’s a transactional account where most of the money that graces its presence it’s swiftly spent to bills, consumables, or any other immediate expenses. Pros: 1. Liquid - They are extremely liquid as you can have available to you immediately through ATMs, checks, and debits cards. 2. Services - Usually are a staple of big banks and come with branches so you can avoid pesky transaction fees from ATMs 3. FDIC Insured - They are also insured by the Federal Deposit Insurance Corp so if the bank fails, the government is supposed to step in and pay you out your funds Cons: 1. No Interest Paid - Because of the liquidity of your funds in a checking account and the benefits you receive such as access to branches, they use you’re your interest to provide those services 2. High Required Minimum Balances – Many banks require minimum balances or they will charge you fees 3. Nickel and Dime Fees – Many banks make their money by finding ways to make your money theirs. This is why they will nickel and dime you in any way possible with transaction fees, penalties, and services. (Remember – Banks need your Money to Function and they Must Be Reminded of that Fact) Savings accounts Savings accounts are a more illiquid form of checking accounts and that was why they gave higher interest rates as there were less services and benefits associated with it. That is why most have only a certain amount of transactions you can have per month or they will charge you a fee. However with the advent of online banking. They can be just as liquid as a checking account. As you can easily move your funds from your savings to your to you checking with just a few swipes. Pros: 1. Higher Interest than a Checking Account –less services and benefits equals more interest paid out 2. Low Required Minimum Balances – don’t need as big of a required balance, but negates the purpose of a savings account, which is to make interest on Big Money 3. FDIC Insured - They are also insured by the Federal Deposit Insurance Corp so if the bank fails, the government is supposed to step in and pay you out your funds Cons: 1. Next to No Interest Paid – With the destruction of the financial system came the lowest interest rates the world has ever seen. This has created a new benchmark for savings accounts, which is next to nothing. 2. Restricted Transactions – Can only use it for a few transactions a month before they start charging fees to keep you from using it like a checking account 3. Illiquid/No Services – no debit cards, checks, or other ways to spend money out of the account Online-Only Bank Offerings High-yield bank accounts High-yield bank accounts are the same as checking and savings accounts but give much better interest rates by eliminating all the frills of a normal bank such as ATMs, branches, and staff. This keeps overhead low so they can pay more out to their customers. Pros
Cons 1. No Frills Banking – can be hard to get to your cash fast with no ATMs, debit/checking services, or branches 2. Money Coordination – can be troublesome when you need to transfer money back and forth from the online bank account to a normal account 3. Teaser Rates – Beware of limited-time teaser rates that they get you to sign up for that reduce in half after only 6 months. Money market deposit accounts One of the most restricted accounts is the Money Market Deposit Account. They are usually offered by banks, but require a minimum balance and only permit a few transactions per month before they start charging fees. Pros
Cons
Both Branch/Online Banks Certificates of Deposit (CDs) Certificate of Deposits are illiquid deposits in a bank or brokerage. They work by you promising to deposit your money and promise not to touch it for the time until it matures. Where you get it back in full with interest. If you take it out early, you have to pay a penalty that usually offsets any gains you have made so you don’t touch it. Pros 1. FDIC Insured - They are also insured by the Federal Deposit Insurance Corp so if the bank fails, the government is supposed to step in and pay you out your funds
There you have it for this first part in the series of thinking like a millionaire. Please check back each week as we unravel the investor's mind. |
AuthorLucas Thomas, professional writer, entrepreneur, and business owner. Archives
October 2016
Categories
All
|
|
|
RSS Feed
