Last week, I wrote about freeing up almost $700 per month for a client simply by examining how they paid their debt. Yet those clients had trouble believing it was true, but it was.
So, if this was you, what would you do with the $700 per month?
There are so many options, but with all of the choices, there are 3 factors to keep in mind:
The first is Liquidity.
How easily can you get cash out of your ‘investment’? Think about how easy it is to get money out of a checking account versus getting cash out of a house.
Some might say that the harder it is to get money out, the better so you won’t be tempted to spend it. True…but if you were in a situation where you needed the cash fast, what’s better?
The second is Use.
Can you use the money for whatever you want whenever you want, without penalty? Some vehicles allow withdrawals for any reason. Other accounts impose penalties under certain circumstances – think IRAs or 401(k)s, or even 529 plans.
And lastly is Control.
Do you have control over how the money is ‘invested’? Or simply have many choices on how to ‘invest’ it? Ultimately, it’s about you making decisions. Simply, are you in control of your money?
Of course, all 3 factors are interrelated. But some might say instead of ‘investing’ that extra money, why not use it to pay down the credit cards even faster? Well, let’s take a look...
If you use the money to pay down a loan or a credit card, and then you needed the money back in an emergency, could you get it back? What if you paid $700 in extra principal on your credit card but then the bank lowered your limit by $700?
Can you use the money without penalty? Well, I think having to pay interest is a pretty big penalty.
What about control? If bank controls the interest rate and fees and the credit limit, and can close your account at any time, who’s really in control?
These aren’t the only factors to consider, but these are certainly important.
So, look at where you save your hard earned money. How would they rate?
Answer to last week’s trivia question: A – 4%!!!!
This week’s trivia question: With the new CARD Act about to take effect, ‘arbitrary’ changes in rates and fees require 45 days notice and only apply to new balances / purchases only. But if your credit card rate is variable, how many days notice must the bank give if the rate changes because the underlying index (such as Prime) changes?
A – 0 days
B – 30 days
C – 45 days
D – 60 days
