Money Walks

Scenario: So you’ve got a nice stash of cash just laying around and you want them to be put to work. You also figured that you didn’t want to be too aggressive buy investing directly in stocks and at the same time you don’t want to invest in long term either so that rules out mutual/index funds.

So then you ask, “should I put my money in a CD or a Money Market”?

Good question. In order to make the right decision, you have to define your goals and needs. Getting it wrong the first time is all it takes for it to cost you the big bucks so you want to make sure that you do your homework first.

For those who do not know, Certificate of Deposit or simply CD, are debt instruments issued by banks and other financial institutions to investors. In exchange for lending the institution money for a predetermined length of time, the investor is paid a set rate of interest.

While on the other hand, Money Market offers many of the same benefits as CD’s but with the added features of a checking account. As far as the interest rates go, they are fairly close. Last I checked, CD’s were running at 4.90% and Money Market at 4.80%.

Here are a short Pros and Cons of Money Market and CD’s.

Money Market:

Pros: Depositing money in a money market is as easy as depositing cash into a savings or checking account. Cash is immediately available for alternative investments so you’re a lot more flexible with Money Market.

Cons: Money Market’s interest rate is not fixed. The rate of interest is directly proportional to the investor’s level of deposited assets, not to maturity as is the case with certificates of deposit. Hence, money markets are disproportionately beneficial to wealthier investors.

Certificate of Deposit (CD):

Pros: The investor can calculate his expected earnings at the outset of the investment since the interest rate is fixed. Certificates of deposited are FDIC insured for up to $100,000 and offer an easy solution for the elderly who desire only to maintain their capital for the remainder of their life.

Cons: Not as flexible as Money Market and will be penalized for withdrawing before it reaches maturity. If the investor opts for a longer maturity and, thus, higher rate of interest, he will lose access to his funds and forgo alternative uses of his capital.

Final Analysis: So if you are absolutely certain that you will not be needing that $10,000 for the next year or so, then I say go for the CD, but if you are not sure, then Money Market is the way to go.

[photo credit]

As many of you know, the importance of investing is crucial. Since investment is tied with time, it’s also obvious that the sooner you start your investment portfolio, the better and bigger your outcome.

Today we’re going to look at the individual retirement account, or also known as the IRA. In short,  IRA is an personal, tax-advantaged retirement plan. An employed person can contribute earned income into an IRA account up to $4,000 per year if you’re younger than the age of 50 and $5,000 if you’re over. In 2008 this amount will increase by a thousand dollars. If you need some more information on IRA accounts, you can get more details here.

Although there are more than just two types of IRA accounts, I want to just pick on Traditional and Roth today.

So how do you know what account is best for you?

If you compare a Traditional IRA with a Roth IRA, a Traditional IRA may be a better move for you than a Roth IRA if you:

• Don’t qualify for a Roth because of your income level but still want the tax deferral on earnings in a Traditional IRA.
• Believe that income tax will decrease in the future.
• Expect to be in a lower tax bracket during retirement.
• Qualify for a tax-deductible IRA contribution.

Now, if you compare a Roth IRA with a Traditional IRA, a Roth IRA may be a better choice than Traditional if you:

• Anticipate remaining in your current tax bracket after your retirement.
• Believe that income tax will increase in the future.
• Expect that when you retire, you will be in a higher tax bracket.
• Have income below the MAGI limit for a Roth IRA, but still too high to qualify for a deductible Traditional IRA.

Even though you may have an idea on what kind of account you’re interested in, its always a good idea to ask your personal finance advisor and seek their opinion. From personal experience, they always seem to have some useful information.

I hope everyone had a great Memorial weekend. With school finally over for the semester, I’m definitely ready for summer to kick off. I know I have been quite dormant with my posts but since I’m finally out of school I can spend a lot more time on the site.

Happy Memorial day.

Time, more than money, can help you achieve your life goals.

If you have a future in mind, whether it’s a home, starting a family, going to college, or building a nice nest egg, the main problem of achieving your goal is that money is tight and hard to come by.

The best tool you could use to help achieve that goal is time. It doesn’t take that much,  but just good time management and a simple plan which you can stick to. When is the best time to start investing? The sooner the better.

There are certain circumstances in which you might want to wait before starting to invest. An example would be, say you have a credit card debt of 5,000 and your interest rate is over 12%. In this case, it’s probably a smarter move to pay off your credit first before starting to invest because you don’t want to be losing 12+% each month from your debt.

Otherwise, the sooner you start the better. You don’t even need a lot of money to invest. You can start with as little as $20, $50 or more a month.

The more you save, the more you will have. The more you have, the harder your money will work for you.

Start now while time is on your side. The younger you are the more time your investment has to potentially grow. What is why it is important to start investing as soon as possible.

Lets do a recap of your possible future investment lineup:

Say you invest $100 a month at an 10% return.

1 year —- -$1,320.00 ($120.00+)

5 years  —-$8,058.73 ($2,058.73+)

10 years —$21,037.40 ($9037.40+)

15 years—$41,939.68 ($23939.68+)

20 years—$75,603.00 ($51603.00+)

In twenty years, you can turn $24,000 into a little over $75,000. And this is just with $10o a month. The sooner you start, the longer you have to let it grow.

When is the best time to start investing?

I’d say today is looking pretty good.

Recently I have been so busy with school preparing for these final exams and projects it’s been quite difficult to keep up with my site. I know that I have to set my priorities straight and school is definitely on the top of the list. Aside from the obvious reason why school should be placed as top priority, let me list some other reasons why keeping up with school helps me save more money(or even make money).

1. I’m on a full scholarship which pays for tuition and fees, room and board and even as far as all my school supplies including my books. In order to keep this I need to maintain a semester and cumulative G.P.A of 3.6.
2. Aside from the full scholarship, which is provided from the school, I also receive some scholarships and grants from the government. This extra money is then turned into a refund check and I get to pocket all of it, each semester! I usually get somewhere between 1,250 to 1,750.
3. If for some reason I don’t graduate on time, I would have to pay for whatever credits I need in order to graduate because my scholarship only covers for 4 years.

So for the next two weeks (until exams are over), I still may not be able to post as frequently as I like to due to crazy hours spent at the library. Believe me when I say, I’m ready for summer and looking forward to full time blogging.

Good News: last week I was able to pay off a little over a thousand dollars off of my credit card. Woot! Right now it’s at an even three thousand dollars. Looking at my current funds, I may be able to pay off some more next week. I’ll keep try to keep you updated and post my total credit card debt sometime next week.

This past Tuesday was Five Cent Nickel’s second year anniversary and he is celebrating by giving away free ipods! There is a total of 5 prizes and here is the list of goodies from 1st to 5th:

1. iPod nano (2GB)
2. iPod shuffle (1GB)
3. USB Microdrive (5GB)
4. Encyclopedia of Financial Planning
5. Time is Money

He has laid out simple rules for contest and you can enter just by submitting a comment on the post(don’t forget to tell a friend). Aside from entering the contest, his site offer tremendous amount of good valuable content. Definitely one of my favorite blog sites. So if you have not been to his site, take this opportunity to visit his welcome page and subscribe to his feed. The deadline for the contest is may 11th.