No doubt because of the fact that both types of investments begin with the words “money market”, there is a lot of confusion about money market accounts and money market funds. While it is true that they do have quite a few similarities, they are not the same thing, and if you are looking to invest in one or the other or even both, you should know the differences.

Money Market Accounts

These are very similar to savings accounts, like savings accounts they are FDIC insured for up to $100,000. Unlike savings accounts though which are often not regarded as investments, but merely a safe place to put idle cash, money market accounts do typically earn substantially more than savings accounts. Because of this though, banks require large maintaining balances, and they restrict the frequency of withdrawals to 6 per month. To exceed these limits is to incur penalties.

Money Market Mutual Funds

When you invest in a money market mutual fund, your money is put into a fund along with other investors; the money is then spread out over several low risk securities like Treasury Bills, CDs and municipal bonds. Due to SEC regulations, the funds mature in less than 90 days.

Investment is done through the purchasing or shares, the price of the shares is always $1.00, should your investment earn; your earnings will take the form of additional shares. These shares can then be liquidated into cash.

While they differ in how they earn money for you, the outcome is similar, they are both low risk, conservative investments, and a great place in which to put disposable money.

If you already have a good portfolio and still have a large amount of capital that you are able to invest, then hedge funds might be an option. If you are looking for a way to realize high returns on your investments and can stomach a little risk to do so, then you are in a good position to take advantage of the power of hedge fund investing.

A hedge fund is a basket of investments, similar to a mutual fund, that is managed by a central fund manager. The fund manager invests into a variety of securities, including, stocks, bonds and commodities. Often the fund invests heavily in debt instruments, making them a more risky proposition, but one that can pay off big.

Depending on the type of fund and the fund manager, the fund might act aggressively in investing or may be more conservative, investing in only fairly safe propositions. Some of the highest earning funds place their money into ventures based on debt and credit risks.

A good hedge fund manager knows how to take advantage of the actions of the various markets to maximize gains at a given time. By investing in a wide variety of markets and commodities, they are able to take advantage of even the smallest price disparities and market nuance. By using derivatives, they use secondary markets to lessen the risk inherent in certain types of investments. From this, the term hedge fund originates. Managers are “hedging their bets” by padding the fund in other areas that will do well should one part of the fund tank.

If you do your homework and place your money into the right hedge fund, you can see tremendous returns on your investment. But keep in mind that hedge funds are a risky venture and there is no guarantee offered.

A money market account is sort of a middle ground between investing in a money market fund and simply putting your money in a savings account. It offers better rates than a savings account, but requires a minimum deposit. While the interest is not as good as with money market funds, there are fewer restrictions on withdrawals.

Savings accounts: minimum risk minimum rewards

Savings accounts have very few restrictions; you don’t need a maintaining balance, and you can withdraw as often as you want with no fines, they are also FDIC insured. The tradeoff is that the interest rates are really quite low. Savings accounts are really just a safe place to store your money when you aren’t using it, they have little value as investments.

The Middle Ground: Money Market Accounts

With a money market account, you need to maintain a minimum balance in order to earn interest. You can withdraw from money market accounts, but there are restrictions. The good news is they are FDIC insured. They do earn significantly more interest than savings accounts, but are still considered very conservative investments.

Potentially high yields with money Market Funds Money market funds are the riskiest of these three options. Money market fund interest rates are dictated by the Fed, you could end up earning a lot when the Fed hikes the rates, on the other hand, you could earn virtually nothing if the Fed drops the rates.

Money market funds are quite liquid though, although they do require sizeable minimum balances. Of the three though, they offer the highest potential earnings.

High yield checking accounts are a relatively new concept.  They showed up in force a couple of years ago and haven’t shown any signs of fading away into financial history.  Rates paid by these accounts have remained high and they continue to gain popularity.  People find them a convenient way to earn a little interest from their money without giving up the convenience offered by a simple checking account.  These accounts will of course vary in their interest rates according to the markets and the economy as a whole, but the trend remains strong.

A few banks have dropped the interest rate paid on these accounts, but those banks mainly fall into the category of distressed institutions.  The trend is for the rates paid on these accounts to go up.  Almost all banks surveyed, that were not on the federal governments list of distressed banks, have raised the interest rate they are paying on checking accounts.  The average now lies somewhere around 5% or just slightly less.

With the uncertainty in the US and world financial markets, it’s impossible to say where these accounts will be a year from now or even a few months down the road.  But compared to other interest paying accounts they still seem to be doing very well and are becoming increasingly popular.  In the last year, the average rate on these accounts as a whole has dropped approximately 1%, but other types of accounts have seen more drastic drops in interest rates.

Anyone looking for a place to put their money for it to earn them a little extra is encouraged to check out these accounts.  They are now common enough that nearly all banks offer some type of high yield checking account.

Every year, especially around the beginning of the year, millions of Americans decide to create a budget for themselves or their families.  Each year most of these budgets quickly fail and are forgotten after a few months.  The problem is that many people don’t plan realistically when making their budgets and this leads to frustration and disappointment.  To avoid such situations there are a few steps you must keep in mind about budgets.  Here are five to get you started.

Realistic

The thing that causes most budgets to fail is unrealistic planning.  When you set down to plan your budget, it’s easy to make all the pieces fit.  If you need to cut a corner it’s easy to tell yourself that you can live without something.  Unfortunately it’s not quite so easy to put such plans into practice and many of those little things you cut out during planning quickly return and wreak havoc on your budget.  Plan realistically from the beginning and you can avoid this problem.

Unplanned Expenses

When planning a budget, most people simply write down their bills and their income and make things equal out.  In the real world we face unexpected expenses all the time and these can destroy a budget.  Once off track, many people find it hard to get their budget working again and give up.  Establish a fund for unplanned expenses when planning your budget.  If you don’t need to dip into it, you can use it to pay down debt at the end of the year.  If you do need it, you’ll have it and won’t need to destroy a perfectly good budget.

Adjust and Review

Your budgetary needs will change over time and therefore you must constantly analyze and adapt your budget.  Keep track of all expenses and do a complete overhaul of your budget twice a year.  Each tie your new budget will be more realistic and exact.  Soon you’ll be able to plan down to the last dime.

Rewards

Many people forget to budget for some entertainment and this leads to an unrealistic budget.  Plan milestones into your budget where you reward yourself.  For instance, if you complete a month without straying from your budget, treat yourself or your family to a night out.  Make sure this reward is part of your budget or you are defeating the purpose.

Don’t Give Up

Many people experience a setback in their financial plans and become frustrated.  This often means the end of the budget and the accompanying financial problems.  Unfortunately problems sometimes arise that we cannot plan for.  Don’t let these things derail all the hard work you’ve already put into your budget.  Simply reanalyze your budget, find a solution to whatever problem came up and get back on track as soon as possible.  Chances are that the damage wasn’t as severe as you had first thought.

Budgets can work wonders for one’s finances as long as they are well-planned and realistic.  Don’t sweat the problems that do their best to derail your efforts.  Worry about the things that you can control and the rest will fall into place.

Your Child’s College Fund?

Arguably the best way to secure your children’s future is to make sure they get the best college education they possibly can.  In today’s highly competitive work environment, a degree from a good college is no longer just an advantage; it is practically a necessity for success.  If you have kids, then the only responsible thing to do is to start saving up for their college education as soon as possible.  When the time comes for your kids to actually go to college, the last thing you want is to have to settle for a lesser school than the best school your kid is accepted at.

The first step to saving for your kids’ higher education is to set up a dedicated account for the money you will put aside for education.  The money will be a lot easier to keep track of that way.  You don’t want to use an ordinary savings account, for one thing, you will get little help from the almost negligible interest it earns, more importantly though, it is too easy to access, and may wind up getting spent on other things.

Initially, you may need to start off with a savings account though, especially if you start off with a small amount.  As the amount grows though, you should look into transferring it to a CD.  CDs will have two benefits:  The first is that you will earn significantly more interest, but second and more importantly, you will be far less tempted to withdraw the money on a whim.  Maintain your savings account though, so that you can open more CDs later on, or add to your fund when the time comes to rollover your CD.

Investing conservatively in stocks is also a great way to save and even earn a bit of money for your children’s college fund.  Just be sure to not invest too aggressively, you could end up losing money instead of gaining it.  Remember that your goal is long term savings, not short term gain.  You should set a target for the amount of money you want to set aside each year, and you should increase that target every year, and every time you income improves.

While you may not have saved up enough when the time comes, your money will not necessarily go to waste, if you have put aside a substantial amount but it is a bit short, your kid won’t have a hard time getting the balance through a loan, these are readily available, especially to students of top colleges.  College can and does cost an arm and a leg, but the college experience, and the security a degree from a top college will give you children is priceless.  If you love your children and are concerned for their future, you will start saving up as soon as possible.

When you’re in a serious financial bind, the thought of filing for bankruptcy may seem extremely appealing.  The thought of having some of your debts written off; or of being given more reasonable terms to settle them, can seem like a Godsend.  Be warned though, filing for bankruptcy should only ever be a last resort, doing so will have far reaching consequences.  You may have trouble getting favorable mortgage rates or credit card offers in the future.

How to File for Bankruptcy

Should you decide to file for bankruptcy though, the first thing you should do is get a good bankruptcy lawyer, if you don’t already know one, you can ask for a referral from you local state bar association.  When you meet your lawyer, be sure to have all you financial documents with you.  Bring bank statements, paycheck stubs, copies of any mortgages and car loans and any outstanding bills, and anything else that might be relevant.

On your petition for bankruptcy, you should list every debt you owe.  It is essential that your information is accurate; giving wrong information can actually land you in jail, depending on the gravity of your infraction.  To be safe, just make sure everything you give is correct.

Your lawyer will want you to distinguish between secured debts and unsecured debts, secured debts are those in which your creditors possess a security interest in the assets you have failed to keep up payment for, such as mortgages or car loans.  Such assets can be repossessed.  Unsecured debts are credit card bills, unpaid utilities or services, and other such bills.

There are certain debts that can never be written off even after filing for bankruptcy, these are child support, delinquent taxes and student loans.  If you have earned any income six months prior to your filing, you need to disclose it fully, or you risk getting your petition thrown out.

Types of Bankruptcy

There are two types of bankruptcy:  Chapter 7 and Chapter 13.  Under a Chapter 7 bankruptcy, your liquid assets will be used to settle what debts can be settled, after which other debts will be discharged. Under a Chapter 13 bankruptcy you will need to submit a plan to settle your remaining debts.

Financial Recovery

After a bankruptcy, it may take a while to get back a good credit score.  You’ll need to settle whatever debts were not included in your petition.  Should you wish to get a mortgage, your best shot would be to apply for FHA or VA mortgage loans although your mortgage rates will be less than desireable.  You will need to pay down payments, and interest rates may not be that good.

Interest rates are low all around but money market rates are especially depressed.  Most people are looking elsewhere to find competitive interest rates.  Here are a few ways to maximize your investments in this depressed economy.

Commodities

Commodities are always a good investment option.  For the most part, they are insulated from the rest of the economy and certain commodities such as gold and silver actually do better the worse things are elsewhere.   Commodities trading requires a great deal of research and prices are dependent on a variety of factors that are beyond anyone’s control.  Pick the right set of possibilities and you can clean up in the commodities market.  Choose wrong and you can be wiped out.  Generally, the more niche the market you invest in, the better your chances are to get it right.

ETFs

Exchange Traded Funds are a great alternative to money market accounts.  These ETFs allow you the convenience of a mutual fund with the flexibility of stock trades.  Most of these funds invest in a basket of stocks that track a particular market index such as the S&P 500.  There are an endless variety of ETFs so you should have no problem finding one that fits your particular interests and area of knowledge.

Stocks and Bonds

Stocks and bonds are still the most popular investment type.  Though they are riskier than money market accounts, through good diversification your portfolio can be rendered quite safe.  A stock portfolio that contains investments in a large number of sectors is the best hedge against poor market performance.

Money Market Funds

Money market funds have some of the safety of money market accounts but offer higher yields.  These funds are controlled by a manager who invests the money into safe investments such as CDs and government bonds.  You can purchase these funds through either a bank or brokerage, but brokerages almost always pay a much higher interest rate.

Retirement Accounts

While money market rates are low, it might e better to place more money into your retirement account.  Funding your 401K or IRA at a higher rate can offset the low interest rates of money market accounts.  Though these accounts might not pay any more than the money market, you will get the tax benefits that the market account will not give you.  Keep in mind that both types of accounts have upper limits for tax free investments.

Play the Market

Though it may seem counterintuitive, when the market is in the dumps, it’s a good time to take some risks.  There really is no way to predict what will happen next so almost any investment could pay off big.  Since safe forms of investing are paying so little, it’s hardly worth your time.  Use the market slump to venture into some new areas.  Take a chance that you normally wouldn’t take.  As long as you properly diversify your portfolio, you can minimize your risk and enjoy gains that you just won’t see with safer investments these days.

If you are having fiscal troubles, creating a budget is the first step to recovery. Unfortunately, simply developing a budget is no guarantee that your cash condition will improve – you ought to be able to stick to it. A financial plan may fail for several reasons. The most recurrent concerns and what you should be able to do to circumvent them are below.
1) Your financial plan is unattainable.
It is extremely easy to come up with a budget that looks brilliant. The figures say that you can keep hundreds a month and be debt free in a year or two. That’s fantastic – as long as the numbers are reasonable!
The most horrible item you may do when setting up a financial plan is put in unrealistic figures. It is extremely easy to do this accidentally (by not realizing how much certain expenditures actually are, or even excluding certain expenditures completely because they are “uncommon”), but every now and then an element of wishful thinking can creep in as well. Of course, if the budget is unrealistic there is no way it can succeed. Your financial plan will be workable if you take the measure to make certain it is realistic.

2) The plan doesn’t include consensus.
If you live by yourself, establishing a budget doesn’t call for you to confer to anybody as well. One of the principal protests you will meet is if you inform someone else involved that he or she can not incur expenditures they’re familiar with . At best you will get an argument. At worst your companion and/or household will begin to resent this new financial plan you’ve put on on them, and may even begin to discount or sabotage it.
As an alternative to making a budget command, it is vital that you get agreement from other people in your household when producing your financial plan. Get everybody involved in looking at the facts, and understanding how much money can be allotted to each area. If those involved understand the total issue, they will appreciate that you are not simply attempting to ruin their pleasure or arbitrarily limit their money. A profitable fiscal circumstance can be had with everyone’s involvement.

3) The financial plan doesn’t allow pleasure.
It’s all too tempting to directly prevent anything fun. This procedure is doomed while making your financial plan look first-rate. Quickly the plan will transform from a gain to an impediment. When this takes place, it is very easy to begin spending extra cash on the pleasurable things you wish for (“I’ve been well-behaved, just one slight extra won’t harm”) but aren’t in the financial plan. This makes disregarding additional features of the budget easier.
Money designated for enjoyment will permit your financial plan to be successful. Including this amount in your financial plan, no matter what the enjoyment is, will guarantee the course of action is sustained. Naturally, this amount of cash must to be determined as with any other element of your budget, and after you establish the sum you must see it through.
Since you are aware of the three most frequent causes that a financial plan can fall short, you are in the ideal arrangement to ensure it doesn’t occur to you. The road to financial success starts with a plan. Use it sensibly by avoiding these everyday mistakes, and you will reap the rewards.