There are many ways to create value through financial planning. The greatest value is gaining clear purpose with all our resources, especially our time. But I realize that most people aren’t thinking that big when they engage a financial advisor or planner. They usually just want to maximize their money. If that’s their objective, it becomes my job to help them make that happen (while always keeping the door open to have a deeper impact later on).
The long term way to maximize money is to do well with your cash flow (income and expenses) then invest the excess income effectively, thereby growing wealth. There is so much to be written about optimizing cash flow and investing well.
However, there is one simple change 90% of families I’ve worked with could make which has paid thousands of dollars in dividends after just a single meeting. That means it’s likely you can make this change and make a lot more money in your lifetime.
The only requirement is that you keep an emergency fund (aka cash reserves, savings). If you have savings, then one of the greatest opportunity costs of your finances is the interest you’re earning, or in this case, not earning. Interest rates have been historically low for the last 12 years. But that doesn’t mean there aren’t options for optimizing the interest you earn on what you keep in savings.
Let’s take the case of a family with $25,000 in their savings (probably close to the average for the readers of this post). A popular bank near me is currently offering 0.25% as their best savings account rate. If that rate doesn’t change, that would equal about $63 in interest for one year.
Compare that with the highest savings interest rate available to you as of August 2022 which is 1.75%. On $25,000 that would translate into $438 per year in interest.
Right now you may be wondering why I’m talking “thousands” when the difference between those accounts isn’t even $500. Because we aren’t just talking about earning more in one year. Many of us have many more years in front of us. How much more would you earn with these differences in rates over the next 20 years?
Over 20 years, compared to the 0.25% at the local bank, you’d earn over $9,000 more in the savings account paying 1.75%. More than that, as rates go back up, this difference in earnings will only get larger. Also, you can still keep your current checking accounts because this new account connects directly to your current accounts. Money moves back and forth between them in just 1 or 2 business days.
But many won’t make this change. Why not? Perhaps changing banks seems disloyal? Or more likely because changing banks seems like a hassle. But if I offer you $9,000 to make a change today, would you take it? That’s essentially what you are being offered, and if you want to maximize your savings, you’ll take it.
As always, if you have thoughts or questions, don’t hesitate to shoot me a message: firstname.lastname@example.org.