With interest rates being near all-time lows, the money in your money market account is not making a whole lot of interest.
It’s crazy to think that back in the day, you used to put money into your bank and make over 10%!
Naturally as human beings, our brains are wired to avoid risk. A key difference between those days and today is that inflation rates were much higher than they are now (https://awealthofcommonsense.com/2014/06/1966-1982-stock-market-really-bad/).
As a reminder, inflation is what determines how much prices go up for goods and services that we purchase. So, if inflation is 5% and you make 5% on your money, you’re making 0% due to inflation. That’s why investing is important: to beat inflation, stack up cash, and live the good life.
Now, with inflation floating between 2-3%, we need to make sure that our money is minimally keeping up with the change in prices.
Dave Ramsey recommends that you save up $1,000, pay off all your debts, then beef up your savings account to a level that equals three to six months of expenses.
If you have already surpassed that, we can chat about what to look for in a money market account.
When choosing a money market account, it’s important not to fall for the trap of picking an account that falls under any of the following:
1) Pays you the most amount of money
2) Makes you keep your money for a specific amount of time
3) Has penalties of any kind
However, the most important thing to look for when choosing a money market account is this:
the most FLEXIBILITY, with the best interest rate.
Remember, the money that you don’t have access to has no value. Just like when a group of pirates bury their treasure on a deserted island, they leave that island thinking they’re rich. When in reality, they aren’t any richer then when they started because that treasure has no value, since it’s not available for them to use.