Saving & Investing

You've already started to save. Think of the allowance money in your piggy bank. But what I'm talking about is saving money in a bank. The reason for both is the same -- You're saving money for something in the future.

Once you have money there are only five things you can do with it: save it, invest it, spend it, waste it, or give it to charity. Saving is different from investing, because savings is available immediately -- it's money in the bank that you can take out anytime. Money that's invested can't be taken out as quickly. See my page on investing and my page on spending for more information on those topics.

After you get your first job, read Jane Bryant Quinn's Making the Most of Your Money - It's in one of my bookcases - (I used my first copy of it so much, that I wore out the paperback copy and had to buy a hardcover). It talks about everything to do with money: insurance, mutual funds, buying a house, retirement planning, etc.

About Money

Money won't buy you happiness, but it will allow you to rent it :-) It is important because if you have a reasonable amount, it can provide peace of mind (if you know how to think about it properly), and will give you freedom to make choices, and flexibility to choose how you spend your free time. Even though money is important, don't let it be a measuring stick to judge yourself or others. The most important characteristics are how you treat others, what you've learned, your education, and what you've accomplished.

The best way to save money is to live beneath your means. Don't buy something new, like clothes, if you can get something just as good that's used. Don't buy brand name items to impress other people. Only if you spend less than you earn, will you ever be able to be financially secure.

Rule 1: for savings -- Any time you receive cash, from a job, your allowance, or as a present, put half into your savings account and spend the other half any way you want (and give part of it away to help someone less fortunate than you).

Why Should I Save?

The Two Rules of Savings

  1. Save early
  2. Save often

More Questions

Where are the Best Interest Rates for Savings & CDs?

Bank Deals Saving Strategies

Is Saving Painful?

If you automatically save 10% of your money, you won't even miss it.

Reasons Not to Save

Laziness - Make it a habit. When you take your check to the bank, put 10% in your savings account. Then put some in your checking account, and take some as cash.

There is another theory of economics, and that's to go into debt when you are young and poor, betting that you'll make more money later, and start to save as you get older. If I'm not around, make sure you contact Barry Korb for financial advice. He is a good friend and was trained as a fee-for-service financial advisor. His website is Lighthouse Financial Planners

The first rule of investing is "invest in yourself." That means spend time and money to learn a skill.


Here's some advice I wish I'd had from my parents. They didn't know anything about investing, so neither did I. My education started by reading Jane Bryan't Quinn's Making the Most of Your Money. My first investment (before I'd read the book) was a CD (no, not a music CD, silly; a certificate of deposit) - not a wise investment decision.

After you have saved the equivalent of the value of one month's paycheck in your savings account, start a mutual fund, and invest in it automatically (If you save automatically (i.e. before you see the money) then you won't miss it). You should be able to open an account with $50, if you agree to invest $25 each month. And don't worry, if an emergency happens, you can call them up and ask to skip a payment.

Knowledge Changes

July 19, 2016 - I know a lot about investing, but that knowledge is old and it has changed. 20 years ago, International Funds were beating American funds, and since International funds did, and still, make up half of the world economy, it made sense to have 1/2 of stock money in International stocks and 1/2 in domestic stocks. That's no longer true. For the last 15 years, domestic stocks have beat international big time.

Ten years ago, it made sense to put Bond money into corporate bonds, rather than treasuries. But I also put money into treasury bonds, because I could buy them directly from the federal government instead of paying a bond fund to manage them. Now federal bonds pay less than 1%, so it makes no sense to buy them at all. But the TSP government bond fund, outperforms TSP corporate bond fund. Therefore, I've switched 1/2 of TSP bond funds to the government bond funds.

Don't be afraid to admit you made a mistake and correct it, but wait a few years, so you can be sure it's not a change in fashion. Ten years is long enough. I feel foolish.

  • How Thinking Costs You
  • Financial Advice For my Graduating College Student

    Mutual Funds

  • Large Cap
  • Small Cap
  • Value
  • Growth
  • International
  • Long Term Bond
  • Muni

    I've just scratched the surface, take a look at Mutual Funds for Dummies or any other book on mutual funds.

    Index Funds

    Index funds make investing easy. Your first fund should be a U.S. large-cap fund. I suggest Vanguard's Total Stock Market Fund. In fact, One-half of your Education Savings Account (ESA) is in that fund (the other half is in an International Stock Index Fund). Later, you should add a small-cap value fund.

    I plan to tell you more later about the other two important rules of investing:
    (1) portfolio allocation and
    (2) rebalancing your portfolio.

    Believe it, or not!

    If someone invests $100 a month starting at age 20, stops at age 30, and never contributes another cent, they will still save more than the person who also saves $100 a month but starts at age 30 and continues to save until they retire in 35 years.

    Any rate of return above 5.44% will do it. I couldn't believe it when I first read it, and had to prove it to myself. It results from the power of compounding. If the return is 10%, your money will be nearly twice as large at the end of 35 years. Even though you've only invested $12,000 and the other person invested $42,000

    Amount: $1,200
    Return: 10.0%

    Year Barney Freddy
    2010   $1,200         $0
    2011   $2,520         $0
    2012   $3,972         $0
    2013   $5,569         $0
    2014   $7,326         $0
    2015   $9,259         $0
    2016   $11,385        $0
    2017   $13,723        $0
    2018   $16,295        $0
    2019   $19,125        $0
    2020   $22,237    $1,200
    2021   $24,461    $2,520
    2022   $26,907    $3,972
    2023   $29,598    $5,569
    2024   $32,558    $7,326
    2025   $35,814    $9,259
    2026   $39,395    $11,385
    2027   $43,334    $13,723
    2028   $47,668    $16,295
    2029   $52,435    $19,125
    2030   $57,678    $22,237
    2031   $63,446    $25,661
    2032   $69,790    $29,427
    2033   $76,770    $33,570
    2034   $84,446    $38,127
    2035   $92,891    $43,140
    2036   $102,180   $48,654
    2037   $112,398   $54,719
    2038   $123,638   $61,391
    2039   $136,002   $68,730
    2040   $149,602   $76,803
    2041   $164,562   $85,683
    2042   $181,019   $95,452
    2043   $199,120   $106,197
    2044   $219,032   $118,016
    2045   $240,936   $131,018

    Barney invested a total of: $12,000
    Freddy invested a total of: $42,000

    Last update: July 19, 2016