Lazy Money

Don’t let your money be lazy. Banks love lazy money. 

It means they get to use your money to expand their profits whilst delivering you only the slimmest of returns as a thank you. 

Getting your money into shape doesn’t take weeks. In fact, thanks to the rise of technology and financial institutions embracing it, kicking your financial future into gear can be done online with the click of a button. 

Example 

Peter has $200,000 sitting in his High Interest Savings account as well as $20,000 sitting in a transaction account. 

He only uses his transaction account for daily purchases like his morning coffee or nights on the town and can’t be bothered to transfer any more money to another account. 

He earns 2.5% p.a in his High Interest Savings Account, equalling to a return of $5,000 a year. 

He earns no interest in his Transaction Account.

Total Interest Earned a year: $5,000

Parker on the other hand has $200,000 has invested as well as $15,000 in a High Interest Savings account and $5,000 in a transaction account. 

He is easily able to cover his daily expenses with the money in his transaction account and can dip into the high interest savings account with the click of a button if needed.

He earns 10%p.a from his various investments across shares and managed funds which earns him a return of $20,000 a year. 

He also earns 2.5% in his High Interest Savings Account which gains him $375 a year. 

Total Interest Earned a year: $20,375

This example perfectly illustrates the detriments of letting your money be lazy and the benefits of money management. 

Parker earned $15,375 more a year simply by actively managing his money. In 5 years, this translates into a difference of $76,875 between the lazily managed money and the actively managed money. 

Of course, there are varying risks to all forms of investments outside of guaranteed savings accounts and bank accounts, however, for those who let their money work for them there are some very clear benefits. 

Get your money into shape and working hard with the following tips: 

Transfer out of Transaction accounts – these accounts earn low or no interest and should be only used when you need access to your money in the short term

Transfer into a High Interest Savings account – these accounts are still quite liquid, with money accessible to be transferred into a transaction account at any time. These accounts are more beneficial as they incur higher returns through interest. 

Invest – Even better, if you can afford a bit more illiquidity, move your money out of a savings account and invest instead in assets to achieve a higher return on your investments. Investors always feel more comfortable when they have access to their funds, however remember the more access you have to your funds, the lower the returns you’ll typically get. 

Use your Credit Card wisely – Don’t pay with your credit card unless completely necessary, instead use money you already have to avoid getting into debt. Use a credit card only to ‘smooth out’ time spent between cash flows and only for absolutely necessary purchases. (read the article above) 

And finally, don’t assume Banks have your best interests at heart – Banks love it when your money is sitting in their accounts doing nothing. It allows them to loan that money out to others at excessive rates all while returning you with only a small return. It’s better to seek a more positive investment elsewhere. 

http://thenewdaily.com.au/money/superannuation/2014/02/20/hidden-costs-paying/