Sunday, October 4, 2009

PART TWO: BRINGING HOME THE BACON


WHEN IT COMES TO MONEY, DON'T LOSE INTEREST

In the saving lifestyle, every penny is important no matter how small it may seem to be, and you're going to hear me say this over and over again. Still, it's true that not everyone thinks so. I can't count on my hands how many times I've walked up to a change machine and found a pile of pennies sitting there because someone thought they were worthless. I'll grant you that by themselves and in the short term a handful of pennies won't buy much, if they can buy anything at all. But they are far from worthless.

Interest earned on a bank account is to me the equivalent of hanging onto my pennies and putting them into a jar, with the exception of the added benefit of compound interest, of course. Conversely, any money that you have in a bank account that is not earning interest is the equivalent of leaving your pennies on top of a change machine. You're leaving your pennies behind for someone else to scoop into their own pocket.

When you deposit money into a checking or savings account, you are essentially extending a short term loan to the bank. They can use that money for a multitude of purposes, including making money. If you ask the bank for a loan, they'll charge you a fee in the way of interest for that. So why would you want to offer your bank a short term loan for free? That said, there are three things that you should be doing here.

First, if you are paying any fees whatsoever to use your checking account I suggest you shop around for a free checking account. In fact, these are so common nowadays I'm not sure why anyone would choose otherwise.

Second, make sure that that free checking account also pays you interest. If you are loaning your money to someone they ought to be paying you something for the privilege. These are commonly referred to as "rewards" accounts or "plus" accounts. Banks have all sorts of names for these so you'll have to do a little research. Of course, you can also look for a money market checking account. Typically these offer slightly higher rates of interest. Still, I don't particularly care for them because often times money markets have all sorts of rules and stipulations, such as maintaining a minimum balance. That money I have to maintain in the money market account could potentially be making better interest somewhere else, so it's actually costing me money to keep it there.

There are myriad checking rewards or checking plus accounts offered in the marketplace that offer you unlimited access to your money and pay you interest regardless of your balance. So shop around. Keep in mind it's your money, not theirs. You should be able to do what you want with it.

And third, if you are earning interest on the money in your checking account, why not get just a wee bit more interest out of it by using a bill payment service? Most banks now offer this for free as well, mainly because it saves them a ton of money not having to process cumbersome paper checks. The way I see it, the beauty of bill payment is multi-fold. First, you can schedule a payment to be disbursed on the exact due date. It may seem minuscule on the surface, but even one extra day of interest earned on that $100 you need to pay a bill is valuable money in your pocket. This is sort of like the equivalent of getting just two more brushings out of that tube of toothpaste we were talking about last week. Second, you save money on a stamp, as well as the cost of the paper check itself.

That's it for me this week. But before I go, for those who still wish to leave their pennies behind, may I extend to you a thank you in advance of your next leaving? I'm quite delighted to relieve you of their burden.

Next installment scheduled for Monday, October 12, 2009, "Part Three: Think Outside the Box on the Road To Riches."

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