Going off on a tangent from recent posts, anyone that has even a very basic idea of personal finance will tell you the importance of creating multiple streams of income for yourself. Nothing riles me more than when I try to talk to someone about investments and they tell me “I just have a savings account” or worse “Oh, I don’t understand finance.”
Multiple income streams will not only help you during hard times, they will also help your bank account, by layering it with extra money! And everyone knows there is nothing better than extra money! Think about how good you feel when you find money that you forgot about in your pocket. If finding such a small amount can make you so happy, just imagine how ecstatic you’d be if you checked your bank account in a few years and found that the money you had in there had doubled!
While there are lots of ways to generate additional income streams, this blog post focuses on the basic financial ones.
One of the easiest ways is to simply open a high yield savings account. A number of banks (such as ING) offer online accounts, generally with limited features, which can be attractive because they tend to offer higher interest rates than most traditional banks. While typical interest rates in emerging markets are relatively high (6-8%), the high inflation ensures this is not enough to have as the only additional source of income. Conversely, the low inflation in the developed world ensures that even the best known online banks only offer APRs of around 1%. Good enough to hold your emergency fund, but definitely not good enough to consider it an additional income stream. In any case, with things going the way they are and customers being charged for keeping money in the bank, perhaps we should look further for more options.
If you are an expatriate from a developing country working abroad, you might consider opening a non-resident savings deposit in your home country. This allows you to take advantage of the much higher interest rates at home, while living in a place with little to no inflation. The biggest caveat with these accounts is not to lose the high interest earned in these accounts to badly timed transfer decisions when exchange rates are not in your favor. As long as you have a basic idea of exchange rates and no urgent need for that money, you can benefit greatly from the close to 8% annual yields offered. Add to that the magic of compounding over the medium-long term, you can make off with a boatload of additional money by taking advantage of international finance. You might even venture to call yourself an international man of finance.
For those that aren´t savvy with exchange rates and don’t want to take that risk, there are also non-resident deposits that allow you to deposit your savings in their original currency (USD, EUR, GBP, etc). Of course, in exchange for mitigating the exchange rate risk, you end up sacrificing a couple of points in the interest rate. No such thing as a free lunch.
—continued in Part 2…