What Should You Do: Save or Invest ?!

Hello dear readers!

Time for Saving and Investment!!

Well, logically, whether it is to save or it is to invest, we kind of need to have some unused money.

Alrighty then..... so,,, how much can you.. "save"? 

    You can buy two fast food meals or one movie ticket or save seven dollars or ninety thousand rupiahs this week. You can buy two small cheese pizzas or one large pepperoni pizza, delivered or one new CD or save fourteen dollars or one hundred eighty thousand rupiahs this week. You can do shopping or you can save your money. It is up to you. But if only you choose to save your money each week at 5% interest rate in 10 years, you’ll have Rp.61.360.000,00 (sixty-one million three hundred sixty thousand rupiahs), if you save ninety thousand rupiahs this week, and double the number if you save one hundred eighty thousand rupiahs this week. 

The question is what can you give up to save for your financial goals? For every goal, there will be things to be sacrificed.



      Assuming you now have a lot of money saved. You might automatically think about opening an account. It is better if you open a checking account if you regularly take money from it. But it is better if you open a saving account if you don't regularly take money you save in the bank because the interest of saving account is higher than of checking account. Yet, if you open a saving account and then you regularly take money from it, your account will automatically turn into checking account (noted :) ).

    Now, there are Major Types of Savings Accounts: first, Regular Savings Account, second, Money-Market Account, third, Transactional Account (Deposit), and fourth, Time Deposit (Bonds).

    Firstly, we are going to talk about regular saving account. If you open a regular savings account, you can receive information about your transaction thru: Passbook Account in which you receives a booklet in which deposits, withdrawals, and interest are recorded, you have average interest rate that is lower at banks and savings and loans than at credit unions, and the funds are easily accessible. You also can choose to have Statement Account, which basically the same as a passbook account, except depositor receives monthly statements instead of a passbook, the accounts are usually accessible through 24-hour automated teller machines (ATM), the interest rates are the same as passbook account, and the funds are easily accessible.

   Basically, a regular savings account are an Interest-earning Checking Account, which combines benefits of checking and savings, and you can earn interest on any unused money in your account.

    Secondly, about Money-Market Account. Money-Market Account is a Checking or savings account. Its interest rate paid built on a complex structure that varies with size of balance and current level of market interest rates. You can access your money from an ATM, a teller, or by writing up to three checks a month. The Benefits of having a Money-Market Account is an immediate access to your money. To have a Money-Market Account, you need to fulfil some conditions called the trade-offs. The bank will usually requires a minimum balance of $1,000 (One thousand dollars or around thirteen million rupiahs to $2,500 (two thousand five hundred dollars or around thirty two million five hundred thousand rupiahs), you can only write limited number of checks each month, and your average yield (rate of return) will be higher than regular savings accounts.

    Thirdly, about certificates of deposit (CDs). Having certificates of deposit (CDs) means you’ll get the bank pays a fixed amount of interest for a fixed amount of money you saved during a fixed amount of time. Benefits of certificates of deposit (CDs) are no risk of losing your money, the way it works is pretty simple, there is no additional fees, and it offers higher interest rates than savings accounts. Its trade-offs are it is a Restricted access to your money, and if you withdraw money before expiration date, you’ll get penalty (penalty might be higher than the interest earned). There are types of Certificates Of Deposit, first, Rising-rate CDs with higher rates at various intervals, such as every six months. Second, Stock-indexed CDs with earnings based on the stock market. Third, Callable CDs with higher rates and long-term maturities, as high as 10–15 years. However, the bank may “call” the account after a stipulated period, such as one or two years, if interest rates drop. Fourth, Global CDs that combine higher interest with a hedge on future changes in the dollar compared to other currencies. Fifth, Promotional CDs that attempt to attract savers with gifts or special rates.

    Fourthly, Time deposit or bonds. A bond is an “IOU,” certifying that you loaned money to a government or corporation and outlining the terms of repayment. Buyer may purchase bond at a discount. The bond has a fixed interest rate for a fixed period of time. When the time is up, the bond is said to have “matured” and the buyer may redeem the bond for the full face value. There are Types of bonds, first, Corporate bond. It is sold by private companies to raise money and if company goes bankrupt, bondholders have first claim to the assets, before stockholders. Second, Municipal bond. It is issued by any non-federal government and its interest paid comes from taxes or from revenues from special projects. Earned interest is exempt from federal income tax. Third, Federal government bond, it is the safest investment you can make, because even if U.S. government goes bankrupt, it is obligated for them to repay bonds.

 Investment!

Look at that pyramid! It describes how investment works.

    But,,, we are talking about several kinds of investment here. We know that investing means allocating money (or sometimes another resource, such as TIME) in the expectation of some benefit in the future. There are ways to invest that we are going to talk here: first, Mutual funds, second, Stocks, third, Real Estate, and fourth, Retirement Plans.

    
     Firstly, mutual funds. It is a professionally managed portfolios made up of stocks, bonds, and other investments. The way mutual funds work is that individuals have to buy shares, and fund uses money to purchase stocks, bonds, and other investments and then profits will returned to shareholders monthly, quarterly, or semi-annually in the form of dividends. The advantage of having mutual funds is that it allows small investors to take advantage of professional account management and diversification normally only available to large investors. There are Types of Mutual Funds: First, Balanced Fund that includes a variety of stocks and bonds. Second, Global Bond Fund that has corporate bonds of companies from around the world. Third, Global Stock Fund that has stocks from companies in many parts of the world. Fourth, Growth Fund that emphasizes companies that are expected to increase in value; also has higher risk. Fifth, Income Fund that features stocks and bonds with high dividends and interest. Sixth, Industry Fund that invests in stocks of companies in a single industry (such as technology, health care, banking). Seventh, Municipal Bond Fund that features debt instruments of state and local governments. Eighth, Regional Stock Fund that involves stocks of companies from one geographic region of the world (such as Asia or Latin America).

     Secondly, Stocks. Stock represents ownership of a corporation. Stockholders own a share of the company and are entitled to a share of the profits as well as a vote in how the company is run. Earnings are made from: company profits. It is divided among shareholders in the form of dividends. Dividends are usually paid quarterly and larger profits can be made through an increase in the value of the stock on the open market. The Advantages are if the market value goes up, the gain can be considerable and money from stock is easily accessible. The disadvantages are that if market value goes down, the loss can be considerable, and selecting and managing stock often requires study and the help of a good brokerage firm.

    Thirdly, real estate. The ways to invest are to: Buy a house, live in it, and sell it later at a profit; Buy income property (such as an apartment house or a commercial building) and rent it; or Buy land and hold it until it rises in value. Advantage of real estate is an excellent protection against inflation. The disadvantages are that it can be difficult to convert into cash and it needs a specialized type of investment requiring study and knowledge of business. If you do invest, you can have capital gains: that is the profits from the sale of a capital asset such as stocks, bonds, or real estate. 

      These profits are tax-deferred; you do not have to pay the tax on these profits until the asset is sold. Long-term capital gains occur on investments held more than 12 months. Short-term capital gains occur on investments held less than 12 months.

    Fourthly, retirement plans. It is the Plans that help individuals set aside money to be used after they retire. Its federal income tax will not immediately due on money put into a retirement account, or on the interest it makes. There will be income tax paid when money is withdrawn and penalty charges apply if money is withdrawn before retirement age, except under certain circumstances. Because income after retirement is usually lower, so tax rate is lower. 

    These are types of retirement plans: first, Individual Retirement Account (IRA). It allows a person to contribute up to $5,000 (five thousand rupiahs or sixty five million rupiahs) of pre-tax earnings per year. Contributions can be made in installments or in a lump sum. Second, Roth IRA (also called the IRA Plus). While the $5,000 annual contribution to this plan is not tax-deductible, the earnings on the account are tax-free after five years. The funds from the Roth IRA may be withdrawn after age 59, if the account owner is disabled, for educational expenses, or for the purchase of a first home. Third, 401(k) (four hundred and one) that allows a person to contribute to a savings plan from his or her pre-tax earnings, reducing the amount of tax that must be paid. Employer matches contributions up to a certain level, and fourth, Keogh plan that allows a self-employed person to set aside up to 15% of income (but not more than $35,000 per year).

Hopefully that table above is understandable and can be a help for you to choose between saving or investing,, or maybe both?

So, what should you choose? Maybe this is the answer (?):

Here is a simple quote: "You should just think about work first, collect much money, and if there is money left after you use it for regular needs and so on, try to invest it. hahaha." – Anonymous

Thank you for reading!

See ya in a longggg time dear readers!#WriterTakeABreak

Best of Luck.