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Your Pot Of Cash Has A Hole In It.

You, like many Americans, may have a sizeable pot of cash just sitting in a bank account earning next to nothing.

The goal in keeping cash in a bank account is safety.

But what if I were to tell you that you that there was a hole in your pot and you are losing 2-3% each year and not even realizing it? You might think twice about keeping high levels of cash in the account.

In a sense, that’s what is happening. Every year, the cost of goods and services increases by 2-3% but the cash stays the same. This cash in your pot has ability to buy a little bit less than it did the year before and the year before that. This is the conception of inflation.

$50,000 today will buy more than $50,000 5-10 years from now.

One option to get around this harsh reality is to invest excess cash in a balanced diversified portfolio.

How to save over $1 million

A young client told me that she wanted to have a million dollars by the time she retired. In her mid-twenties, she has time on her side. By socking away $5,000 every year until she retires, she’ll hit her goal (assuming a 7% annual return). See the blue line.

It would be a much different story if she came to me ten years from now (see the green line).

Bottom line: Start saving early.

A Wake Up Call: How Not to Deal With an Inheritance.

The following story offers a great example of what can go wrong when a young, financially inexperienced individual becomes wealthy overnight. This author’s advice at the end is exactly what we recommend to clients in this situation:

  1. Get advice from someone on how to use this new found wealth.
  2. Create a plan. Put it in writing. Understand what these funds will be used for it.
  3. Stick to the plan. Without controlling your budget, you can slowly lose track of the wealth.
  4. Don’t be tempted to rely too much on this wealth. It’s very, very easy and tempting to dip into the inheritance when things get tough. But it’s nearly impossible to rebuild a nest egg has been decimated.

How I Blew a $250,000 Inheritance