“ Part I: Identify all the lazy dollars in your financial life. Identify source, amount and what action might be indicated.”
Response
One of the lazy dollars I have identified is due to the heavy advertisements I have often used in my business. The advertisement costs have amounted to $1000. I have indeed spent too much on magazine and television advertisements that are valueless to running my business. The action that the lazy dollars indicate that I require to have new productive strategies of how to advertise my business such as online platforms- Instagram, Facebook, Twitter, or even Snap Chat. Secondly, my lazy dollars come from the savings I keep at home in my cash box. These savings I made monthly since May 2020 and not invested in it due to my insecurities about the unknown future. It is noteworthy that saving money is one of the primary steps to have money-based growth through investment (Oh et., 2013). But, saving and not investing in the right accounts is considered not productive. I have not invested in my savings and this situation has made my money saved not grow in any way with less than expected returns. Financial analysts assert that this practice of having savings and not investing it influences one's purchasing power as there is a reduced disposable spending income. What this action indicates is that I should opt for an investment plan where the future returns are considered to be higher than when the same money was saved.
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Thirdly, using my credit card can also be considered as another lazy dollar. I bought my laptop worth $1,000 with my credit card which had an 18% interest rate tag. So, I have to pay each month a small amount. I end up paying an amount not less than $175 in interest in a given year. I have not yet settled the $946 remaining amount for the purchase I made. The action the case indicates is that I should avoid using my credit card. Instead, I should reduce my spending and financing as it would make me bankrupt over time. I need a good credit score as well.
“ Part II. Develop a personal and household savings plan. What savings strategies will you use to improve your financial situation? Explain why you chose each strategy instead of others that you did not choose. How much will you save each month? How much interest will you earn and how much will you have saved in 5 years, 10 years, and 20 years?”
Response
Developing the household and personal savings plan would be based on the savings strategies such as evaluating high-yield interest rates and a money market account for my savings. These two strategies would work well for personal and household savings as opposed to regular savings accounts. The interest rates on the high-yield interest rates and money market account are better off than what the regular savings accounts would provide. The first reason for using the high-yield interest rates is that one can opt for online bank transactions to achieve these high rates. It would be better to invest now as time changes and investment is often risky (Liu et al., 2020). As well as the money market account, the interest rates earned are more than the regular savings account. In the previous years, I had not considered different savings options, but the steps I would take would be to weigh factors such as possible account fees, minimum balance requirements, the new interest rates as well as the initial deposit requirements. Another reason for choosing the high-yield interest option is that the bank can specify the amount to be paid as premium yearly, semiannually, quarterly, and month to month or every day. While compounding would improve the home yield theoretically, then if one sticks to the accounts' comparison by using the annual percentage yield (APY). Also, the money in the high-yield savings account would be easily transferable to other accounts since I have other accounts that I have not used for some time. Assessing different banks’ performance is important using the Multicriteria Decision Making balance score card method to help know any strengths or weaknesses before joining (Yazdi et al., 2020). Therefore, the other strategy would be to have a bank account where the money would be saved as opposed to having the money lay in my house with no returns as before.
Every month, I would make $200 as savings with an approximate interest of 25% on the savings. In 5 years, the savings would amount to about $15,000. Then in the 10 years, the money would total to $150,000 and in 20 year period, the savings would grow to $300,000.
References
Oh, C. H., Park, J. H., & Ghauri, P. N. (2013). Doing right, investing right: Socially responsible investing and shareholder activism in the financial sector. Business Horizons, 56(6), 703-714.
Liu, X., Wang, Z., Zhang, S., & Chen, Y. (2020). Investment decision making along the B&R using critic approach in probabilistic hesitant fuzzy environment. Journal of Business Economics and Management, 21(6), 1683-1706. Retrieved from: https://journals.vgtu.lt/index.php/JBEM/article/view/13182
Yazdi, A. K., Hanne, T., & Gómez, J. C. O. (2020). Evaluating the performance of Colombian banks by hybrid multicriteria decision making methods. Journal of Business Economics and Management, 21(6), 1707-1730. Retrieved from https://journals.vgtu.lt/index.php/JBEM/article/view/11758
