Climbing out of poverty with a savings program

[updated on 4/3/2014]

Climbing out of poverty requires steady income and a savings program.  Money that people earn every week or month is called steady income.  If people put some of their income into a bank account, they have a good savings program.  It’s impossible to escape poverty without a savings program.

MyRA

President Obama recently announced a new MyRA plan for saving money from each paycheck to buy $5 savings bonds. The savings bonds will have a low interest rate, BUT the attractive feature of the MyRA plan is that savers will eventually be able to deposit all of their savings bonds into a traditional individual retirement account (trad. IRA) after they slowly save $15,000. The trad. IRA is managed by professional people who can help invest the money. This is a great deal for young poor people with big plans for the future.

Advice

Be patient and save money in a bank until Congress approves the MyRA plan. Find somebody you trust, such as your public librarian, to help you understand the MyRA plan. To the person who saves $15,000, consider investing it in a stock-index mutual fund (e.g., VFINX) or stock-index ETF (e.g., VTI). Beware of the fancy plans offered by professional people; their job is to invest your money for you and they always earn a small trading fee for doing their job.  Today’s trading fees are about $8-$10 each trade.  You only need one trade to buy VFINX or VTI with $15,0000.  Don’t let the professional people earn a lot of money from you by recommending fancy plans with many trades.

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5 Responses to Climbing out of poverty with a savings program

  1. duaimei says:

    The myRA is a new and exciting option that will need to be researched and compared to other investment vehicles.

    I would just like to point out that if you’re disciplined enough, you can open up an IRA at Vanguard for as little as $1,000 for a target fund, or $3,000 for VFINX. Additional buy ins are $100, but you don’t have to have to set up automatic deposits.

    The interest paid out in an online savings account is most likely going to be higher than the bonds, but the myRA is a great way for people to start thinking about their retirement.

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