“Money is like an arm or leg – use it or lose it.” Henry Ford
Do you know the best ways to keep your money?
Most of us don’t. We don’t learn economics in school – it’s probably too practical. Over time our schools abandoned the gratifying subjects such as health, arts, etiquette and economics. They focused solely on abstract topics, and the more words and numbers involved, the better.
Consequently, we suck at insignificant things like staying healthy, communicating with our loved ones, keeping our families out of debt, preventing climate change, and avoiding plagues’ mass death. We don’t complain because we learned the really significant things, like finding the derivative of a function. We don’t remember how it’s done, obviously, but we are satisfied because we once knew.
Unfortunately, we end up having to learn practically everything by ourselves. Fortunately, knowledge is everywhere nowadays. We depend on no educator for supplying it for us, thank goodness.
However, there are things we don’t even know that we don’t know. How to keep our money is usually one of them, so most of us get it wrong. As I learned over years of handling money and writing about it, the best way is to keep money in many forms simultaneously. It sounds complicated, but it’s not – we do some of it intuitively, and can easily learn the rest.
The most useful forms of keeping money are doing nothing, using savings accounts, and investing in things such as bonds and stocks, gold, cryptocurrencies, and real estate (mostly our homes). Here are short explanations of what these ways are, and when to use them. Remember, however, that I’m not a professional counselor, and I only offer my personal research, experience and views.
Leaving our money untouched is not profitable, admittedly. Still, it is the right thing to do for small amounts of money we need liquid – that is to say, we need to use them within a matter of days or weeks. We all do it anyway- keeping some money in our wallets, and some more in our checking accounts.
Yet, if the sums we use monthly are significant, we better check whether the interest we can get for a short-term deposit is worth the bother.
On the other hand, when the interest rate for Savings Accounts is negative, like it has crazily been recently, we better consider using a checking account also for longer periods.
Savings Accounts typically give a low-interest rate of few percent per year. We commit to putting our money in such an account for a given time, and the bank invests this money according to its questionable preferences. It earns money, and we get a fixed percentage of our savings.
Savings accounts are better for us than checking accounts because we usually get something in return for putting our money there, but our profit is small. These accounts are useful for money we may need in the short run, within the next few years. When we save for something that we know we will use in the short term, like a car or a vacation, a savings account is the safest way.
Besides, in unstable times (as is the case for many of us nowadays), if we have reason to believe that we might get fired or will be in other need of an immediate sum, keeping an emergency fund in a savings account can be a good idea. This way the money, preferably of several salaries worth, is handy when we need it. Meanwhile, it doesn’t lose its value. (That is, unless the inflation is higher than the interest, and the account is not protected against inflation by being index-linked).
However, when we can deposit money for the long run, we better take a more profitable path and invest it. Even if the sum we can invest is small, we better do it because, over time, it can be profitable.
Investing In the Stock Market
Even when we don’t actively invest our money, most of us are invested in the stock market anyway, through our pension funds and the like. Therefore, we should know something about managing our investments.
Over the last century, the stock market has increasingly risen. The average rise is 8% per year. Some years, of course, are more lucrative than that, and some are worse, and the percentage can even be negative. Yet, if we invest for the long run in wide index funds that follow the stock market, these are the average revenues we can expect. As economist Benjamin Graham sums it,
“To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks.”
But not all stocks are created equal, obviously. When we buy shares of corporations that exploit their workers, suppliers and clients, turn our society apart or destruct our planets, we are responsible for their evils. On the other hand, when we invest in Sustainable and Socially Responsible Companies, we help the world. Fortunately, these companies tend also to be more profitable.
Therefore, the pros of investing in stocks are their relatively high profits, the support given to areas we want to advance, and the ease of investing in them. The con is mainly the risk, especially for not wide enough index funds, or for the short run (if you need the money at once when the markets are low, for instance).
Other investments have other balance of pros and cons we can consider.
Housing is something almost everyone needs. A home, however, is not only about money. It has huge effects on our well-being, relationships, bringing our children up, etc. These housing considerations are usually more important than our financial considerations to our overall happiness. We better remember that money is here to serve us, not the other way around.
From a financial point of view, investing money in buying an apartment or a house can be better than renting it for many of us. However, keep in mind that the correct comparison should be between investing the same amounts in buying a home versus renting it and investing the rest of the money. On the other hand, not putting all of the money in the stock market but spreading your eggs between several kinds of investments can be a good idea, too.
While buying a house to live in is often a good idea, buying housing as an investment is another story altogether. It requires knowledge of the field, it can change dramatically over the years, and it has severe moral implications. Housing is one of the areas where wealthy people exploit poor ones in the cruelest ways, often without even knowing it, through management companies. It is still the owners’ responsibility, though.
So you probably better stay out of buying houses as investments, unless you want to research the subject deeply and do it professionally.
Solar systems, on the other hand, can be an especially good investment. In many countries the governments encourage green energy and give superb rewards to people who install solar systems on their roofs. Whoever owns a house may want to check this option.
The price of gold has been very unstable for the last century, and has rise on average much less than the rise of the stock market. Yet, when the stocks prices fall, many people buy gold to store the value of their money.
Gold’s obvious disadvantage is that while its price goes up for the long run, the rise is small – it is relatively very unprofitable. In other words, we can keep some for a rainy day, as jewelry, for example, if we believe we should fear one. But it is not much of an investment.
These digital coins are young, they have been here for only a decade, but they have made huge progress over this time. The first one, Bitcoin, cost only a few cents when created in 2009, and now its price is about 50,000$. As you can see for yourself, whoever bought it and kept it even for several years made a lot of money.
I believe that these currencies have a lot of social, economic and technological advantages. To name a few, they are private, impossible to counterfeit and harder to steal. Besides, they can’t be inflated, manipulated or used against other countries, the way governments do with their currencies.
Consequently, the demand for cryptocurrencies rises over time, and so do their prices. Nowadays, they are also considered to be a balancing factor in case the stock market falls.
Since they are only making their first steps, and most of the technological options they offer are not used yet, cryptocurrencies are bound to take a lot more of the market, in my opinion. Investing in them an amount of money we can afford to lose seems like a good choice to take, then, for both ourselves and the world.
All That Glitters Is Not Gold
What we do with our money is one of the things we, as conscious people, should give much consideration. As we define our different goals and the sums we need for them, we can choose the right ways to allocate and keep our money. But while our decisions affect our lives significantly, they have an enormous effect on others as well. This effect can be beneficial, but it can also be disastrous.
Therefore, we are responsible for knowing who we give our money to, and what they do with it before giving it back to us. We are responsible for what the companies we pay do on our behalf. As Seneca the Younger wrote,
“Who profits by a sin has done the sin.”
So we better think deeply about what we want to do with our money.
What we buy, and from whom.
How much we better keep with us.
How much we save, and where.
How much we invest, and in what.
It’s our responsibility to put our money in beneficial hands.
To conduct one earnest examination at a time.
To make one good decision at a time.