Finance Roll

Money... If you have a lot of money then you probably don't need to read this article...or, do you? If you only have a little money or you are broke, this information probably won't help you...or, will it?

Whether you have money or not, the chances are that you have some kind of credit debt like a home loan, car loan, credit cards and the like. But do you have a savings account? Are you able to save any money from your income? If not, here's a tip you should keep in mind: Pay yourself 10% of your income to a savings account before you pay anything else and here's why; you are your most important utility. It is you that gets up and goes to work everyday, it is you that manages the household, the bills and other responsibilities in life. Without you nobody gets paid...not the mortgage, not the car loan, not the bills and other debts.

You are your most important "service provider". Saying that you don't have enough money to save 10% every week is not a good argument... the world is a vampire...the more money you make, the more the world takes one way or the other. You have to draw the line and understand that generating an income for yourself and your household is just as important a service/utility as having lights. Try to pay yourself first because without you, nobody gets paid. You owe it to yourself to save 10% of your income because that is your reward for working and generating that income.

Do you realize how important savings can be to your decision making and economic power? Here's a helpful example of the power of saving called CD financing. By having a savings account with $2,500.00 to $5000.00 or so (at least) in savings, you can put that money into a CD (certificate of deposit) and use that CD as collateral at your local bank to borrow a secured loan with an interest rate 2-3% over the CD rate. I'll explain... A CD is a cash-based investment instrument where you give the bank say, $5,000,00 and they give you a "certificate" of deposit (CD). The CD pays a better rate of interest than a traditional savings account during the term of the CD which may be 90 days, 6-months, one- year, two-year and so forth. Let's say you have a $5,000.00 CD and you pledge that CD as collateral for a $2,500.00 loan from the bank.

Remember; rate is a function of risk and by borrowing money against your CD in this way you are providing the bank 100% cash collateralized no risk loan. Let's say you have a two-year CD is paying 3% interest...there is virtually no reason why you can't get a two-year loan where you are paying 5-6% interest because it is secured by the CD for the term of the loan. Now, in this example you have $5,000.00 CD earning 3% interest per year and a loan for $2,500.00 at 6% interest per year...which is a very low interest rate loan (and) the interest earned by the CD basically cancels out the interest paid on the loan! Other benefits of using a CD to collateralize a loan are as follows: First, if you took your savings and bought something, the money is gone (.) By using the CD financing concept, you get the money you need and you still have the CD asset, which is earning interest. When the loan is paid and your CD matures you still have your original money!

Other benefits include the fact that you can structure the loan so that you are not obligated to make a monthly payment under this arrangement. You can set up the loan with your banker...if you make some payments or no payments during the loan/CD term, you simply cash out the loan from the proceeds of the CD when it matures. OR you can roll the CD and the loan over for another year or two. This is an intelligent way to borrow or rebuild credit ratings even after a bankruptcy. This is one example of how you can benefit from saving money. It gives you power to make decisions...to be your own bank. So the next time you hurry to dish out all your income to pay bills, stop and think about saving 10%.

Copyright © 2006 James W. Hart, IV All Rights reserved