Do you spend your interest??

[disneysteve]

if you can live off of your investments without having to do your hourly wage job - I'd think I was pretty wealthy.

That would be called retirement. When I don't need to work to pay the bills, I will hang it up and live off my investments. I'm hoping to be there at age 62.

[anonymous_saver]

I love earning interest. I have a notebook that I track my money market account and all it's sub accounts (spec house, car account, christmas, vacation, etc.). I have one sub account for just interest.
Do you spend your interest or do you save it??

No, I do not spend my interest. I love to see my accounts gain interest though every month. It helps me get to my goals faster. Also, when I finally do have 8 months of an emergency fund (my personal goal) saved up, I will still keep the interest in the account, as I will be accounting for inflation (even though my accounts gain more than the current inflation rate).

I don't even know if that post made sense.

[disneysteve]

I will still keep the interest in the account, as I will be accounting for inflation (even though my accounts gain more than the current inflation rate).

Don't forget about the effect of taxes. If your MMA pays 5%, that interest is taxable - let's say 25%. That lowers your actual rate to 3.75%. Then knock off 3% for inflation and your real rate of return is about 0.75%. If you spent your interest, you'd actually end up losing money over time.

On a different topic, this also illustrates why it is so important to keep a good percentage of your money in equities to get a higher real rate of return.

[anonymous_saver]

Don't forget about the effect of taxes. If your MMA pays 5%, that interest is taxable - let's say 25%. That lowers your actual rate to 3.75%. Then knock off 3% for inflation and your real rate of return is about 0.75%. If you spent your interest, you'd actually end up losing money over time.

On a different topic, this also illustrates why it is so important to keep a good percentage of your money in equities to get a higher real rate of return.

That's true, I haven't thought about that in a while. Isn't it funny how we all get excited about a real return of around 1% or so?

What's really not funny though is my friends that just won't change from their 0.1% interest savings accounts through their banks for a 5.05% interest account from Emigrant (or from other places like HSBC or ING). Oh well, I can only try so hard!

[LuxLiving]

We save ours.

[disneysteve]

Isn't it funny how we all get excited about a real return of around 1% or so?

I don't get excited about it, though I like it a lot better now that MMA is earning over 5% compared to a few years ago when it was 1% or less. What I do get excited about is the bulk of my investments which are in the stock market. My best mutual fund last year was up over 39%. Another was up 28%. 16% for another. Even after taxes and inflation, that's where I'm making the real money. Of course, some of those gains were given back last week but I've got 20 years before retirement so I'm not concerned about a small correction.

[Aleta]

What Steve said is true. But that is where some funds that are tax exempt help although they pay lower interest. If you're in a high tax bracket, they help out. I am reading a book by Jane Bryant Quinn where she says that if you have savings bonds hold on to them until you are in retirement (that is if you are close to retirement) since your tax rate will probably be lower and she says that you can also space them out. You could sell a couple this year and a couple next year, etc. Although savings bonds are paying 3.60 bonds until April 2007. Plus, they are tax deferred, so they can have a place in your portfolio as well. They are reasonable enough to buy $25. for a $50. bond and they're are accessible.

[Ima saver]

I will have to take some of the money out pretty soon and buy land and start a new house. Then my interest amounts earned will go way down, but for now I am enjoying watching it add up every month.

[creditcardfree]

We save ours, too. Right now we have been getting interest of around $30 a month. Not a lot, but it does add up over time.

[meaghanchan]

I leave mine in the account where it is- my emergency fund interest goes back into my emergency fund account, etc, but if it needs to get spent (in case of an emergency, or whatever the account was intended for) it gets spent.

[Ima saver]

I haven not bought any land or started building a house, so for right now, we are earning about $67 a day. Now, If we could just live on $67 a day. I know some people do it. Somewhere on here I read something about a blog about living on $20 a day, but I can't find the site.

[th_tan]

I never spend the interest, what goes in the bank, and what interest comes from it, stay there until something big comes up. Theres no reason to dip into my savings.

[disneysteve]

Now, If we could just live on $67 a day. I know some people do it.

That's $24,455/year. Maybe not enough for most to live on, but a pretty substantial amount. And remember, if you don't spend the interest, with each passing month, it continues to compound, so that $67 steadily increases. In 5 years, it would be up to about $87/day. In 10 years, it would be $117/day. Thus the power of compounding.

[kimiko]

I count it as income, but I don't do anything with it.

[krayziebone33]

I leave mine in the account where it is- my emergency fund interest goes back into my emergency fund account, etc, but if it needs to get spent (in case of an emergency, or whatever the account was intended for) it gets spent.

I go by the same policy. Whatever interest is earned stays in the account to earn interest itself. Each of the accounts that I have thus far are emergency accounts that I need to build as fast as possible. My personal goal is to have about six months of living expenses and emergency dollars. I will be taking it a step further starting this month; I will be matching the interest earned every month. This is a little game that I have thought of for myself and can actually afford to play because I only earn about $8/month so far I doubt I'll be able to play that game once I start earning $67/day like Ima Saver.

Anyway, I try not to spend anything in any of my liquid accounts. By this time next year, I hope to have at least 3 CDs and be making a strong splash in the mutual funds arena. It feels good to know so much about saving and to actually be applying what I've learned even though I haven't even graduated from college yet. By the time I do graduate, I hope to have a healthy amount of money to start my new life with.