Challenge

Day 28: Grow Your Money (30 Day Financial Wellness Challenge)

Start early. Be consistent. Automate and don't speculate.

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Day 28: Grow Your Money (30 Day Financial Wellness Challenge)A simple diversified strategy to maximize your returns and grow your money.

Welcome to Day 28 of the 30-Day Financial Wellness Challenge.

Each day will comprise of financial exercises, some short and others a bit longer, to help you become financially fit. The goal is to tackle different aspects of personal finances one day at a time.

After the 30 days, you’ll have a stronger understanding of your financial health and an action plan to improve your financial wellbeing. Review Day 27: Earning More

In previous days, you learned how to save more, start investing, contribute to retirement savings, and earn more money.

On day 28, you’ll learn the strategy and tactics to grow your money.

When it comes to growing your money, we’ll focus on savings, retirement contributions, and stock market investing.

Let’s get started.

Grow your money in savings accounts

The simplest way to grow your money is to have it in an interest-bearing deposit account. If you’re earning interest, then you’re growing your money. This is different than having your money in a jar, envelope, or in a bank account that pays no interest.

Get a high-yield savings account

With savings accounts, the risk to your money is almost non-existent therefore you’re not going to get much in return for storing your cash. However, many online banks, credit unions, and cash management accounts offer higher interest rates for your money.

Refer to the evaluation of your banking relationships. What interest rate do your savings accounts have? Although the interest rates won’t make you wealthy, it’s stepping in the right direction in making money with money. It will lead you to ask, “can I find better rates elsewhere?”

When determining what savings accounts you want to look at the interest rates, fees, and accessibility. Remember savings are meant to be liquid and used for short- to mid-term goals. And remember, you can also (and highly recommended) to have multiple savings accounts. Additionally, your savings accounts can be in a different financial institution.

Use a CD Ladder Strategy

Certificates of Deposit accounts also referred to as CDs are offered by banks or credit unions. They are a great way to earn more money with higher interest rates compared to savings accounts. The length of the certificate terms can range from one month to 5 years or more. The longer the term the higher the interest rate. Breaking the term before the maturity date will incur a penalty.

Use a CD ladder strategy to help you earn more while giving you access to your money on a rolling maturity basis. Basically, you divide your money and deposit into certificates with different maturity dates.

For example, you have $20,000 saved to cover 6 months of living expenses. To have this money work for you it’ll need to earn interest. You certainly can keep it in a high yield savings account earning 1% or you can use CDs to earn more.

In the example below, we opened CDs on April 1.

Account TypeInterestAmountMaturity
Savings account1.00%$3000None
30-day CD1.25%$3000May 1
3-month CD1.50%$2500July 1
6-month CD2.00%$2500October 1
9-month CD2.50%$2500January 1
12-month CD3.00%$2500April 1
15-month CD3.50%$2000July 1
18-month CD4.00%$2000October 1
Total$20,000

If the money is not withdrawn, the CDs roll over into a new term. For instance, your 6-month CD matures and you do nothing, it’ll renew into another 6-month CD with the current interest rate.

Since your money is locked for a term, this can prevent you from withdrawing money for non-income disruption emergencies.

Keep in mind different financial institutions compete on certificate interest rates. So shop around for the highest rates. But do keep all your certificates in one place so it’s easier to manage.

Grow your retirement savings

Get the employer match

Don’t leave money on the table. If your employer offers a match to 401k contributions, it’s wise to meet the minimum to receive the full matching amount.

It’s suggested that you contribute 10% of your salary to retirement plans. If you’re contributing 6% and your employer matches 3%, then you’re total contribution is 9%. This means you’ll only need to increase your contribution by 1% to get to 10%. But don’t stop at 10% either. Work your way to meeting the maximum allowable pre-tax contribution limit set by the IRS.

In the example below, you can see how you can grow your retirement savings with an employer match.

AgeSalaryYour 6% Contribution3% Employer MatchTotal ContributionsYear-End 401(k) Balance
21$30,000$1,800$900$2,700$2,889.00
22$30,900$1,854$927$2,781$6,123.60
23$31,827$1,910$955$2,864$9,707.07
24$32,781$1,967$983$2,950$13,670.03
25$33,765$2,026$1,013$3,039$18,045.62
26$34,778$2,087$1,043$3,130$22,869.71
27$35,822$2,149$1,075$3,224$28,181.14
28$36,896$2,214$1,107$3,321$34,021.95
29$38,003$2,280$1,140$3,420$40,437.60

Use target-date funds

Take the guesswork out of your retirement plan. Most 401k plans offer target-date funds. The target-date fund is usually named with the expected decade of retirement. You might see the funds named as 2030, 2040, or 2050 and so on.

For example, a 30-year-old has 30-40 more years before reaching retirement age. If the plan is to retire at 60, then the choice would be a 2050 target-date fund.

A target-date fund is an investment strategy that rebalances asset class weights over time. When you’re younger with a longer retirement timeline your money is invested heavier to stocks. As you near retirement age, it switches over to bonds. This reduces exposure to market movements right around the time you’ll need the money to pay for living expenses.

Investing in the stock market

When we thinking of growing money it’s usually associated with owning stocks. In fact, your retirement savings grow because it’s invested in the stock market too. The next step in growing wealth is in the market but it can be intimidating.

One thing to keep in mind. There’s a big difference between investing and speculating or day trading to grow your money. We’re going to focus on simple investing for growth.

Stick with index funds

With investing, there’s the potential to lose your money, but with the risk comes an opportunity for faster and bigger growth. If you’ve taken the Start Investing challenge, then you understand the importance of starting early, investing small amounts, automating, and remaining consistent.

To grow wealth using index funds, use robo-advisors that can help you create your portfolio mix, invest, and remain consistent with automation features. Typically, you’ll need to do a ton of research to determine which stocks or funds can meet your objectives. It can get overwhelming. Luckily, robo-advisors does the heavy lifting for you.

With robo-advisors, you get financial advice using an investment portfolio theory and proprietary algorithms to provide you with a customized allocation strategy. And robo-advisors charge substantially lesser fees than their human counterpart. This means you get to keep more of your money.

Learn more: Best robo-advisor for automated investing

Day 28 Assignment

I want you to start thinking about how to grow your money. We covered the basics during previous daily challenges. Today, your task is to think more strategically.

  1. Answer the questions below to get you thinking about your current situation.
  2. Take the challenge to increase your savings, retirement contribution, and investing.
How much are you earning with your savings account?Do you plan to use a CD ladder strategy?Yes [  ]    No  [  ]
Are you taking advantage of your employer 401k matching?Have you or can you increase your contribution by 1% today?Yes [  ]    No  [  ]
Have you started investing in index funds?Did you set up automatic transfers with your robo-advisor?Yes [  ]    No  [  ]

Grow Your Money Tips

Start early. But it’s never too late to begin. The sooner you start saving money the more you’ll benefit from the power of compounding. Whether its compound interest from savings or compound growth for stocks and index funds.

Start small. It’s better you start with any amount you can save, contribute and invest. Something is better than nothing and you’ll find in time you can increase the amount as you see your money grow.

Be consistent. Use automation to stay on schedule regardless of market conditions. You’ll benefit from dollar-cost averaging. It’s a simple technique that entails investing a fixed amount of money in the same fund or stock at regular intervals over a long period of time.

Don’t speculate. Unless you plan to learn how to do trades and research stock stick with the simplicity of index funds. However, as you meet your goals and grow your money, there may be opportunities to buy and sell stocks too.

Additional Reading

  • Perfect Portfolio Course – a course for new investors who are looking to get started and looking to avoid major losses in the investments they choose.
  • M1 Finance – a robo-advisor investment platform ideal for new and experienced investors with no hidden fees, 100% free investing tool, commission-free trades. Choose your portfolio of stocks, fractional shares of stock, ETFs.
  • Blooom is a free analysis tool to analyze your 401(k) and other plans no matter where you work or where your plan is held. No account minimum to signup and get an analysis.

Next Daily Challenge: Day 29: Borrowing Money

Jason Vitug

Jason is the founder of phroogal, creator of the award winning project Road to Financial Wellness, and author of the bestseller and New York Times reviewed book, You Only Live Once: The Roadmap to Financial Wellness and a Purposeful Life.

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