The Independent Voice of Southern Methodist University Since 1915

The Daily Campus

The Daily Campus

The Independent Voice of Southern Methodist University Since 1915

The Daily Campus

The Independent Voice of Southern Methodist University Since 1915

The Daily Campus

Don’t bank on banks

Financial efficacy is necessary in an increasingly global economy. Knowledge about personal budgeting, tips and savings are critical to survive in the short term –paycheck-to-paycheck and month-to-month.

But, if one successfully follows the steps to a financial future, an entirely new dilemma arises: how can one grow savings in the long run?

Sitting money is the worst form of money. With inflation, which decreases the value of your money as time progresses, a $100 today might turn into only $90 in ten years. Inflation increases the prices of goods and services and results in a decrease of the purchasing value of money.

In 1931, Babe Ruth made $80,000 per year. He had the wealth equivalent to a millionaire today. What would have happened if he had simply put that money in the bank?

With an interest rate of 3 percent compounded once a year, his 1931 salary would have been the equivalent of approximately $877,000.

Money that sits in the bank accumulates interest ever year. Interest — a fee paid on borrowed funds — can grow original wealth to a certain degree.

For students, who make much less than any professional athlete, the same principle applies. If a freshman places $4,000 in the bank, the same formula will return her of $4,502 when she graduates.

There are easier ways to make money than relying on a financial institution and its interest rates.

Bonds, stocks and portfolios are all places to invest. While the risk is higher, the return is greater.

The average corporate bond has double to triple the interest rate of a traditional bank. Stocks can return triple to quadruple what an average bond does if smart investment decisions are made.

And the risk can be mitigated through diversification – investing in bonds and stocks in multiple industries and sectors.

For students entering into the workforce, knowledge about how to grow a paycheck is critical in an economy where job security is not the norm.

In times of emergency, everyone will benefit from not only better spending habits but also greater wealth generation techniques.  

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