The Irreverent Guide to Making Money: Put It To Work

There are four basic ways of making money. You can earn it, save it, invest it or steal it. Earning money is what you do when you go to work all day and trade your time and skill in exchange for a paycheck. You steal money when you burglarize someone's house, rob them, become a credit card company, or vote yourself a fat retirement and benefit package while your constituency struggles to survive. You save money when you stash it aside. If you invest money, you put it to work in hopes of making more money than you can by stashing it. In the postings that follow, we're going to explore each of these moneymaking opportunities, except stealing it. You'll have to pick up that information elsewhere. But, for now we'll discuss one of my favorite topics, saving.

Saving today can also be a form of investing, but usually has little or no risk associated with it. Think of saving as if you own a business and you hire employees to make your business more successful. The employees in your saving business are the dollars you put away. I like to think of them as little green people ready to work for me. This is my most cherished type of employee. I don't have to pay them a wage, worry about paying into retirement and health benefits or concern myself with lawsuits. It just doesn't get better than that. However, like any employee, if they are not placed in the right position, they're not going to be effective, in fact, they may even cost me money.

The first object is to accumulate a small crowd of these little green employees. Therein comes the 10% rule. Pay yourself 10 cents out of every dollar you make. Interestingly enough, my neighbor, who has more money than a host of gods, was discussing her philosophy on accumulating wealth. "I pay myself first, even if I eat boxed noodles to do it. Ten percent of everything I make goes to me," she said. She is not alone in giving this advice. Many books and advisors recommend doing this. A good short book to read is "The Richest Man in Babylon" by George S. Clason. It was first published in 1926, but it's timeless that's as valid today as it was when it first hit the market. (Remember, I said it's short and you can probably find a copy at your library. Read it. I promise, you won't die.)

For those of you out there living on the cusp of financial ruin, take care of debt first. It makes no sense to put a dollar aside that earns 5% when you're paying some jerk 35% interest. You end up with a net loss of 30%. Once your debts are in control, start salting 10% aside. You can stash your first few dollars in a savings account, an individual retirement account (IRA), if your employer offers that option, a certificate of deposit account (CD), a money market account, and under the mattress (not good, but better than some savings accounts.)

Savings accounts are only good if you don't have to pay the bank a monthly fee for having one. They are also only good if you have nowhere else available to put your money. Here's why. Interest rates paid on savings accounts are generally very low. For example, right now Bank of America pays you a whopping 2%. That means you are losing 1% a year on your money at the present 3% rate of inflation. Plus, they charge you $6 every month if your savings is less than $300. So, that means if you put 10 of your little green employees in there, the bank is going to take 6 of them away from you and put them to work for the bank. Hmmm, let's see how that works out. On that $10 deposit you are left with exactly $3.99. To add a little humor to the whole thing. The next month you will owe the bank $2.01 ($6 service charge minus your $3.99 balance). All I can say about that is WOW!!! That makes the mattress sound better all the time. At least my mattress is only going to cost me 3% (the rate of inflation)

The next time we're going to continue to look at your savings options so you can decide what's best for you.