Welcome back to money myths, the fourth edition! People are often convinced that scrimping and saving is the sure fire way to getting rich. Well you know I’m here to debunk money myths, and the latter couldn’t be any less true. There are many ways to accumulate wealth and achieve financial freedom, but storing a bunch of your money in a low interest earning savings account is simply not the way to do it. I’m OK with putting some liquid cash away for a rainy day, but putting a vast majority of your money into an account that has a 1% rate isn’t going to do anything but lose you money. I say lose money because inflation will outpace and eat away at your hard earned money. Imagine saving money year after year, and each year it is worth less than the one before.
Well not that you know it’s a myth, you are probably wondering what to do with all of your disposable income. This is where smart investments come into play. Rather than CD that ties up your money and returns little to you, give a dividend paying stock a shot. I personally put quite a bit of money into companies like Johnson & Johnson, and ADP, because they have shown a history of increasing stock dividends year over year, and their share price has continuously increased as well. By reinvesting my dividends back into the stock I am able to defer taxes and make the additional money work for my benefit.
If your employer offers a 401k plan then make sure you invest in it to the max. By deferring taxes you essentially lower your overall annual tax bill, many times you receive an employer match, and you find yourself severely outpacing inflation with money for your retirement. If you are already investing in a 401k then you should start thinking about an IRA. You can invest in different types of IRA’s, whether it’s with before or after tax money. Just make sure you have the correct investment allocation for your age range. I currently invest into a plan that allocates the right amount of funds for my retirement age. This is a mixture of international stocks, bonds, and domestic investments that balance my risk appropriately.
I hope you enjoyed our fourth edition of debunking money myths! Come back shortly for the fifth and final article.