| Friday, May 16, 2008 |
| An attitude adjustment advocated |
Humberto Cruz's lastest Boston Globe column: Want a savings plan to succeed? Then adjust your attitude and do some homework provides some slightly harsh advice. Another reason (excuse?) given for not saving is that interest rates are low. "Maybe if interest rates went back to 5 percent I would start saving," a reader wrote. "But now it doesn't pay to save."
Ah, but it does. When you start saving, you don't have that much principal to earn interest on. It's only after you have accumulated a fair amount of savings that a higher rate makes a significant difference.
If you save $200 a month at 5 percent interest, you'll have $2,456 after one year. If you earn 2 percent, you'll have $2,422, just $34 less. I would argue it pays to start saving now so that, if rates go back up, you'll have more money to earn the higher interest.
And if rates don't go up, you'll have more savings to possibly put into investments that tend to do well when rates stay low, such as low-cost, broadly diversified stock mutual funds. - ING Direct $25 Opening Bonus |
| posted by Boston Gal @ 9:25 PM *
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I actually thought that the recent decline in interest rates combined with the decline in stock prices was not a bad thing at all. It encouraged me to "go all in" on equities. Other than my emergency fund, virtually everything I have is now in equities. When interest rates were higher, I was more conservative. Whether I will continue to push money into equities or pull my horns in somewhat depends on where interest rates and equity prices go.
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I actually thought that the recent decline in interest rates combined with the decline in stock prices was not a bad thing at all. It encouraged me to "go all in" on equities. Other than my emergency fund, virtually everything I have is now in equities. When interest rates were higher, I was more conservative. Whether I will continue to push money into equities or pull my horns in somewhat depends on where interest rates and equity prices go.