Forget Opening A Savings Account Buy Land Instead.
Currently in today’s market, the average saving account will give you below 1% in interest for holding your money. The most common interest you will see right now is 0.30% or 0.40%. Let’s do some quick math, for example lets say you put $10,000 into a savings account that will guarantee you a 0.30% interest rate and by the end of the year you would have made $24 on your $10,000. That would be great for a nice lunch or maybe three cups of coffee but when you put your money to work for you, it should be working for more then just pennies on the dollar.
Why do people open up a savings account? For safety and easiness. It takes very little work to maintain a savings account and there is no risk in loosing your money unlike stocks and bonds and other types of investments. Don’t get me wrong, it’s great to have a little emergency fund, a place to be able to grab your money quickly where its safe, unlike underneath your mattress, but people tend to have too much money in there savings account and that’s what I want to talk about today.
There are people who believe that a savings account is a great place to put your money and many open the account with their bank. Everyone has a checking account but keeping your money in a checking account won’t make you money and you also risk loosing your hard earned money. If you were to keep saving your money and put $50,000 over the years, those $50,000 sitting in your account will only earn you $150 by the end of the year in interest. Not to mention that banks use your money for their own investment purposes. You’re kind of helping them make more money by having your money sit with them. So why not make your own investments?
Do you really need a $50,000 emergency fund sitting in your savings account? Everyone has different expenses and scenarios, so this would be based on your finances. For me I would be okay with having a $20,000 emergency fund, I don’t need $50,000 laying around. The most common rule of thumb I hear is that you should have a three month emergency fund, which is the only reason a savings account is good for. That extra $30,000 can go towards buying land, yes land! Not only can it appreciate in value but you get some tax benefits, potentially start building something on the land or rent out parking spaces, so many options. Now I know its not risk free and I will not lie and tell you to not worry because your money is safe. It’s not a guarantee. Investing in real estate is never a guarantee.
History has shown that if you try and time the market, over time you have a greater chance of loosing money. However, if you are willing to have your money tied up on the land for 10–20 years, then in theory you should statistically be okay. I prefer having my money sit on a land purchase over sitting in a savings account. There are so many opportunities for sale right now, I still see land for sale at $7,000 and even $5,000 in some area. If it interests you, please make sure to do all your research and talk to a real estate agent.
So you want to buy land, now what? If you want, you could do nothing. In recent years real estate has appreciated 7% year after year which already beats the 0.03% that the savings account will give you. Let’s say you buy land for $10,000 and in 10 years you just want to sell it because you want some capital, in 10 years your land could be worth $20,000. While the savings account gives you $240 dollars over the next 10 years. $240 dollars in comparison to a possible $10,000 is insane to think about! But remember you have other options, you could build on the land, maybe put a manufacture home on top of the land, or rent our parking spaces for RV’s or a camp site or an Airbnb. There’s so many options that open up when you go and put your money into land verses just the savings account.
Did you know that back in the year 1986 you were able to walk into your local bank facility and open up a savings account that offered you a golden return of 5.75%? That would be absolutely be amazing during these times, could you imagine? There would be almost no need to invest your money since you can make you a 6% return every single year with the bank. If we stick to our same example of $10,000 in your account the bank would be giving you $600 a year. Much better than the $24 that you are currently getting, but you might be wondering why do savings account suck now? Why cant we have the same 5.75% that we were getting in 1986?
There are many reasons why we don’t get that amazing percentage anymore but the answer I am going to give you is because of the banks home loan department. In the year 1986 home loans were being given out at a interest rate of 17.5%. Banks were making money off of the home loans alone. Compared to today’s home loan interest rate, you could probably get a solid 3.0% . To me its simple, banks are making less money on the money they are lending so they can’t offer higher percentage rates for your savings account. How did we get to this point though? I have no idea.
Anyway, you’re not going to hear in the news that someone got rich from opening a savings account. One of the easiest proven ways to gain wealth is through real estate but real estate can be expensive, especially right now when houses are going for millions of dollars and everything is becoming more expensive. So you might as well start small and go with the cheapest option of real estate, land.
People want to make easy money without having to do much. That’s everyones dream! So I hope this gives you something to think about, and remember to think about the tax breaks, inflation, the history of real estate when making your decision. What’s that famous saying that some guy said? “With great power comes great responsibility?” Hm, no thats not right. Ow “With no risk comes no reward!” Good luck guys!
-Talk to your CPA’s, Lawyers, Real Estate agents.
