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4 ways you can optimize your long-term Cash Deposits & Emergency Fund reserves to grow & multiply your Money.

Have you ever asked yourself why so many people who are making a lot of money are still struggling financially; they are in excessive debt.

According to financial advisors, the number one factor that people are struggling with their money is that most people don’t understand how to manage their money.

Financial Experts suggest that Money that is sitting in checking accounts, savings account and or even emergency fund reserves is being wasted.

As you may know, taking a portion of your monthly income and simply depositing it into your checking or saving account means that the money is doing very little work for you.

Banks can lend up to 10 times what you deposited into your checking account and or savings account.

It means that for every shilling you put into those accounts is working for the bank and not for you.

To fully get value for your hard-earned money deposited in those checking and saving accounts, you have to look for better ways of putting that money to work for you.

This wisdom is not taught in schools, it’s not taught by our parents as well. Instead, our parents are in the same financial mess that most people may end up in.

It is a system that trickles down the family. The burden is being transferred from one generation to another.

This can keep you thinking of the behaviors of typical savings including emergency fund reserves as well.

Reason why people don’t invest their long-term Cash Deposits

It has been said that you can’t save your way to wealth.

Those who park their money in checking accounts or saving accounts may find that these accounts have far less purchasing power.

This Low consumer buying power is being caused by a growth killing combination of low return and moderate inflation.

To beat all these obstacles you need to put your money to work for you.

A lot of people don’t invest their money into their future.

There are 3 reasons why they don’t invest:  

  1. Fear
  2. Lack of money
  3. Don’t believe in investing

Fear – Just fear of the unknown, fear of taking their money outside their bank and putting it into an investment that they are fearful.

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Lack of money – They just don’t believe they make a lot of money or they have a lot of money left over at the end of the month to be invested.

They don’t believe in investing – Their parents did not do it, their friends don’t do it. They just don’t believe in investing.

The best way to grow and multiply your money is to invest.

But you just don’t get your money invested if you don’t have goals for it.  It will tend to get away from you.

Have an assignment or a mission for every shilling you own.

Some of the places you can put your money to grow and multiply.

It does not matter if you are a working class or very wealthy individual, everyone needs an emergency fund or money saved for future use.

You might have some thousand shillings lying around either in your checking account or just some cash saved up at home which is earning you nothing.

There is no better place to park your money that you are trying to save than making it work for you and double it in figure.

Below are some of the places you can invest your money to double;

1. Good growth stocks mutual funds

A mutual fund is a collective investment that pulls together money of a large number of investors to purchase a variety of securities like stocks.

Mutual funds were created as a way of a bunch of people to pool their money and make investments together.

The thing to consider is that investing in mutual funds, you don’t own the underlying shares of the mutual fund; you own an interest. There is a pooled interest in the mutual fund.

By investing in mutual funds, you get access to a number of different appropriate securities. So, you can be liable for capital gains that other people might have experienced.

Mutual funds offer 3 most benefits;

  1.     Convenience
  2.     Diversification
  3.     Active management

Mutual funds can benefit investors in several ways;

Convenience – by investing in mutual funds you get to own a bunch of different stocks all in one easy package.

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The fund could have a hundred different stocks in it. By investing via mutual funds you get instant ownership in all the stocks the mutual funds already own.

Diversification – it’s a strategy that reduces your investing risk by spreading out your eggs.

By investing in mutual funds, you spread out your money across many different stocks.

In this case, if one of the stocks in the mutual fund totally crashes you will still be fine because each stock is only a small portion of your overall portfolio.

They are managed by investment professional – rather than trying to find stocks on your own you have some super smart guy who supposedly knows what he is doing pick the stocks for you

2. Dividend paying stocks.

Dividend paying stocks is another good place to put your money to grow and multiply. You can put your money in stock even if the stock does not make any money by appreciating in price.

 If you buy stock for Ksh 45 a share and stay at Ksh 45 for the entire year you did not make any money on the appreciation part but you did get paid in the form of dividend.

Another strategy to make money with dividend paying stocks is to look at stocks that have a history of not just paying dividend but also increasing their dividend over time.

Disclaimer – This past performance does not guarantee future results.

It does not mean that just because they have always increased their dividend, they are always going to.

But still, this gives you some piece of mind knowing that they have a solid history of doing so.

3. High yield savings accounts

Many people like you have some big financial goals to achieve.

The best place to start is by having your money kept in the right bank accounts that offer the highest interest rate.

It’s not a good idea for your money just sitting in your bedroom or under your pillow or mattress. This is because your money will be losing purchasing power every single year due to inflation.

High yield savings account is a type of savings account that pays out a higher rate of return than a normal bank savings account.

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If you have a few thousand shillings that you are saving away for an emergency fund, a high yield saving account is a perfect way for you to save that money and earn really good interest.

Especially if it’s not something that you are planning to withdraw anytime soon.

Mostly these accounts are very much convenient whereby it’s easy to withdraw and easy to transfer to other banks.

If you think of saving your cash and maybe you may need it to be super liquid somewhere or sometime in the future, a high yield savings account is the best place to park your money.

4. Short Term Bonds

Bonds are generally seen as a safer investment than stock. When you purchase a bond, you are giving your money as a debt to a Corporation or Government.

They will then owe you your money and pay you back the principle plus interest at the end of the maturity period.

Short term bond is considered a bond with a maturity date of 2 years or less.

Maturity date above two years up all the way to ten years is considered intermediate, and a maturity date longer than ten years is considered a long term bond.

This kind of investment should be able to provide a more attractive income but with lower price volatility.

Buying only one bond can be more risky than buying a large basket of bonds. Large bonds would provide a diversification which is essential for reducing investment risk.

If you have a limited amount to invest or you only have enough money to buy one or two bonds; buy units of bond funds.

The bond fund should have a diverse portfolio of shorter maturity bonds.

To make sure that your money is kept safe, you need to keep the maturity of the bond short and you should invest in a diversified range of bonds.

Short term bond is going to mature quicker, it’s going to be less volatile or it’s going to be less sensitive to the interest rate moves when compared to a long term bond.

Remember that you typically hold bonds in your portfolio for stability.

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