Sunday, March 02, 2008

Earn a return of 6% to 24% a year

How can you get a return of 6% to 24% a year?

The solution: lend to yourself. How is this possible?

During the first few years of your working life, you accumulate savings. You will earn a modest rate of 2% a year on your savings. In later years, when you need money to make a major purchase or an unexpected emergency, you borrow from your past savings.

If you do not have the past savings, you have to take a loan and pay interest at 6% (on secured borrowing) to 24% (on credit card). By borrowing from your past saving, you save this hefty interest rate.

It does not matter that your saving earn you only 2% a year in the meantime. When you need it, you can save 6% to 24% on your loan interest.

If you borrow $10,000 at 6%, the interest is $50 a month. If the rate is 24% a month, the interest is $200 a month. If you can save $50 to $200 a month on interest payment, it can add to your savings.

If you do not need to lend to yourself, you can invest your savings in a low cost, diversified fund to earn about 5% to 7% per annum. That is still better than 2%.

Remember: When you have the chance, accumulate savings. You will need it for the future. Keep your saving in a flexible investment that can be withdrawn without penalty, such as a savings account or an investment fund.

Do not invest in high cost financial products that locks you up for many years and imposes a heavy penalty on early withdrawal.

1 comment:

Anonymous said...

That is a fantastic way to treat money. First pay yourself and borrow from yourself and pay yourself the interest you borrowed from yourself.

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