Do you ever wonder how you’ll finance future dreams when it always feels like you’re barely making ends meet? In today’s Finance Friday article, Jennifer shares some expert information on ways to save.
Finance Future Dreams
by Jennifer Wake
What are your dreams? Homeownership? Traveling? Retiring early? The military lifestyle can often make future financial dreams feel like a high stakes gamble. Just about the time I have savings started for a dream, the military sends us orders. Then a PCS saps up all the savings, because we all know moving is way more expensive than expected. No matter what your dreams are, with planning and determination they can come true. First and foremost, our future is secure when we accept Christ as our Savior. We have eternal life with Jesus in heaven.
Blessed be the God and Father of our Lord Jesus Christ! According to his great mercy, he has caused us to be born again to a living hope through the resurrection of Jesus Christ from the dead, to an inheritance that is imperishable, undefiled, and unfading, kept in heaven for you,
1 Peter 1:3-4
Yet God wants us to continue pursuing our dreams and His plans. Although His plans for us are to prosper, we will have trials and temptations. Having some money tucked away in savings may make weathering those storms a little easier.
There are many ways to finance future dreams, like houses, retirement, and college for children.
I shared in a previous blog about saving for college so, today we will discuss different ways to grow our savings.
Savings come in several forms. Financial experts often separate them based on their liquidity. Liquidity is a term relating to how easy it is to access. Different types of accounts are high liquidity and others are low liquidity. Accounts that are easy to access, very liquid, should be used for short term savings since they grow at a slower rate. Long term savings should be in accounts that are harder to access but which grow at a higher rate.
A traditional savings account at a bank or credit union is very liquid.
You add money to your savings account and the bank uses it to loan to other people and then gives you interest for using your money. The current interest rate is under 1% which is lower than inflation. Yet this type of account is helpful for money you may need to use soon. The bank or credit union guarantees your money so you cannot lose your savings. This type of account is great for savings for specific things like christmas gifts or car repairs. Most Credit Unions, like Navy Federal or PenFed will give slightly higher interest rates than banks.
Another type of savings is a Certificate of Deposit (CD).
This has a higher interest rate but you must agree to leave your money alone for a period of time. The longer the time the higher the interest rate. This is less liquid than a savings account but if you plan ahead CDs can allow you to grow your savings safely at a higher rate than a savings account. Most CDs are guaranteed so you won’t lose your money. This is great for saving for a dream that is a year or two away. Such as a trip or a down payment on a house within two years.
Another type of savings account is Money Market Mutual Funds.
This is very similar to a traditional savings account yet it is a mutual fund that is invested in securities. It is low risk because it is guaranteed by the company, but it may have a higher rate of return. Again, it is liquid so it should only be used for short term plans.
Now we come to investments.
Investments can mean several things. One way to invest is to buy individual stocks. There are many brokerage firms that will open brokerage accounts for you to buy individual stocks of different companies. These same firms offer mutual funds which buy a variety of stocks so your money buys parts of shares of stock with other people. Investments are not guaranteed, your investment can lose value or gain value. All investments come with risk. Joining the stock market means there will be risk involved.
During this past year, the stock market has grown at an incredible rate. But how do you use that to your advantage? Investing in a mutual fund or individual stocks has risk. This money can grow or can lose value, there is no guarantee. Even though there is no guarantee that your investment will increase in value, in the long run this is where to put your money to grow to fulfill your dreams.
Let’s talk about buying a home. If you dream about buying a home you can save money in a mutual fund until about two years before you are ready to buy your dream home. Then you can withdraw the down payment and put it into either a savings account or a CD. That way when you need the money you know you have it.
One caveat about investing is, you can’t time the market.
There are many people who believe they can figure out when to buy and sell to make the most money. Unfortunately, many people lose more than they gain. I am a “Buy and Hold” person. I put my savings and investments on an automatic plan so that every month it leaves my bank account without me thinking about it. That way I am paying myself first by saving for my dreams. Then, if the stock market is down I buy more shares, if it is up I buy less shares. The amount of money did not change, just how many shares I could purchase.
We will save the types of funds discussion for another blog. You have many options to finance your future dreams through saving and investing. The key to savings is attaching a dream to it. Savings work when you dream and focus on making that dream a reality. What is your dream?
CDs vs. MMAs vs. Savings Accounts