Wednesday, March 5, 2008

Protect your money!

Calculating your net worth helps you see the realistic image on where your finances stand, however, in order for the image not to become worse, you must Protect your money!
Now, what do i mean by that? If you thought that you should grab your cash, stick in a sock and keep it all nice, warm and safe, resting in your armpit, while you drink juice, then there is nothing left to do but for you to slap yourself and order yourself to WAKE UP! Honestly. Do not, and i stresst that DO NOT keep your money at home! Avoid keeping large sums of money in your house at all costs! Now you may wonder: "Why all this fuzz, why keeping money in my house is bad? Should i put my money in bank? I live in a 21st century, of course i keep money in a bank, that's so obvious!" But, i would have to dissapoint you again.. Yes, keeping your money in a bank is a better idea, but it's not the Best idea! You see, while keeping your money in a bank, you gain interest, that's fine, but that is not enough. On the most cases, the interest rate that bank offers is not high enough to cover the worst nightmare for money -> INFLATION !
Yes, inflation majority of time is bigger than interest rates and this leads to your money losing it's worth. For those of you that don't know what inflation means:
"Inflation is a rise in the general level of prices of goods and services in a given economy over a period of time. It may also refer to the rise in the prices of some more specific set of goods or services. In either case, it is measured as the percentage rate."
Now, the bigger the inflation, the faster your money lose their value. Let's take an example, you have $10.000 and inflation rate is 10%, then in 5 years your $10.000 will only be worth 50% of it's value Today. Yes, banks help to reduce this creeping death, but it's still not enough.
The next logical question you should ask: "So what do i do now? Will i lose all my money? There should be a way!". And yes, there is a way. It is called - INVESTING !
Investing in BONDS is probably the safest and easiest way to protect your money from inflation! Bonds are absolutely great! Depending on your risk tolerance, bonds should make a large portion of your portfolio as they are one of the most important investing instrument there is.

1 comment:

Kristin said...

Keep up the good work.