Aaron A. Franklin
18 APR 2006
In America people are spending money they do not have, applying for more credit, and
going into debt with no outlook for the future. Khan reports that the average household credit
card debt is upwards at around eight thousand dollars. (1) She also states that for every dollar an
American makes, one dollar and twenty-two cents is spent. (1) Debt is increasing in America
causing most people to become slave to bills and stress. Escaping the confining debt problem,
Americans must strive for financial freedom. Financial freedom begins with a strong base which
is accomplished by clearing credit expenses, living at or below means, creating an emergency
fund, and making smart investments.
Before entering into financial freedom and saving money for the future, credit cards must
be cleared. “Paying off debt is a form of saving” (Quinn 180). The difference of interest
collected from savings accounts, compared to the interest payments of the average credit card, is
at least a ten percent difference. (Khan 1) Someone having ten thousand dollars in their savings
account and ten thousand dollars on their credit card is actually losing around one thousand
dollars annually. In the same scenario, he or she would not be losing money, but gaining it if the
ten thousand dollars in savings was used to pay off the credit card bill.
Credit is not the enemy or the fighting force against financial freedom; in fact, having it
can be very useful. Having good credit allows people to buy houses, cars, and other necessities
in life. Most people cannot buy a car or house with cash, so many receive a loan. Paying off a
loan in a consistent, timely manner frees up finances and builds good credit; which is hard to
achieve, but easy to lose (Pond 150-151).
Maintaining good credit, using it wisely, and eventually clearing it can be achieved by
budgeting. Budgeting involves critical analysis of outgoing expenses compared to incoming
expenses; also known as “net worth” (Pond 156). Keeping a positive net worth each month, by
living within means, is the key to budgeting. The best way to budget money is to create a
spending plan; which guides personal spending in needed areas while squelching spending in
other areas (Quinn 160-63). Quinn insists that if a spending plan is successfully planned, “it will
always work” (160).
A successful spending plan, according to Quinn, is organized by keeping track of every
dollar that is spent throughout one month (163). As soon as the initial spending plan is laid out,
one must analyze each area the money is being spent and rearrange spending to savings,
investments, and necessity verses entertainment, wants, and splurges (Quinn163-65). This
analysis of personal spending operates as the base in achieving financial freedom by making the
most out of personal income.
With a good foundation in place, one can create a new area in spending; the emergency
fund. This fund is used only for emergencies or unexpected expenses. There are many kinds of
emergency funds, which one can create, also known as short-term investments; including a
savings account, an alternate checking account, certificates of deposit, a money market fund,
treasury bills, and municipal notes (Pond 27-31). Positive interest can be made by each one of
these accounts with little or no risk involved. Investing in such accounts will make money work
for you, instead of against you like credit cards do.
The following briefly explains how each of these short-term investments, listed above,
A savings account usually has a lower interest rate than the others, but the benefit of a
savings account is it being insured by the FDIC up to $100,000 (Pond 31). There are some
savings and checking accounts that will give a higher interest rate by requiring a minimum
balance at all times (Pond 31).
A money market fund works like a savings account. This is one kind of savings account
that has limitations on it. Usually the investor must keep a minimum balance of five hundred
dollars and can only make six transactions a month (Quinn 187). The benefit of having this type
of account is the interest rate is much higher than a regular savings account.
When investing in a CD (certificate of deposit), the investor is free to invest a minimum
of five hundred dollars, for as little as three months, at a fairly low interest rate (Pond 29). The
more money invested, at a longer amount of time, results in a higher interest rate (Quinn 191).
Money that is invested in a CD is similar to a savings account, in which the money can be
insured up to $100,000 and is done through federal institutions (Pond 29).
A treasury bill is regulated by the Federal Reserve (Pond 30). The investor is allowing
the government to borrow money until the set time, set by the investor, expires (Quinn191-92).
In comparison, the investor is like a credit card company and the government is the user of the
credit card. When money is invested in a T-bill it is sold for a discount price and once it
matures, in as little as twelve months, the investor receives more money than he or she put into it
because of the interest earned (Pond 30). There is no risk involved in this type of investment
A municipal note is tax-exempt with high interest rates (Pond 31). They work about the
same as a T-bill and the maturity ranges from one month, to a year (Pond 31).
The previous investments are good short-term investments, but there are other types of
investments for long-term. These investments work for an investor’s future; usually for
retirement. Compared to short-term investments, long-term investments have a higher risk.
Although they have a higher risk of losing money, they carry with them greater benefits if they
are invested in wisely. Savings bonds, mutual funds, stocks, and retirement funds can all be
beneficial long-term investments. All long-term investments offer a “buying into” attitude for
investing. The investor buys into a company, organization, institution, or the government
directly in hopes that the money invested is used wisely and is cashed later with a great return.
This is why it is high risk; if the institution invested in fails to make money, then so does the
Savings bonds have been seen as the most secure, low-risk, long-term investments. They
are similar to the T-bill and the CD but constructed in the long-term instead of the short-term.
An investor can buy up to fifteen thousand dollars a year in bonds, or as low as fifty dollars a
year. The time each bond takes to mature differs but is usually around eighteen years (Quinn
195-96). When a bond matures, it doubles; so if someone invests fifty dollars, in eighteen years
it will be one-hundred dollars. This figure seems minimal, but if one invests ten-thousand
dollars and has twenty-thousand dollars in eighteen years then the benefit is much greater. The
money invested in bonds are tax exempt until cashed, but a way of getting around that is to use
the money to pay for tuition for college (Quinn 195). Quinn insists the savings bond is best used
to save money and spend the earned money on a higher education for one’s self (195).
Investing in stock can be very beneficial with extensive research, smart buying and
selling of stocks, and a little luck. Stocks give the investor full control over his or her money.
When one buys into stock, he or she is actually buying a small portion of that business. The
basic strategy in making money is to buy stock when it is low and sell it when it is high (Pond
37-46). If someone bought a stock for ten dollars and the next week it is worth twelve dollars
then he or she just made two dollars, each stock, in one week by playing the market. Stocks are
at a high risk because the market fluctuates so much. A good way to counter the high risk, in
order to make a smart long-term investment, is with diversity. In other words, “don’t put all your
eggs in one basket”.
Investing in a mutual fund is a safer way to play the stock market. Many institutions
provide guidance and prearranged mutual funds to invest in with great results. The most
common way to use a mutual fund is to contribute a certain amount a month and let the
institution, having professional investors, invest your money. The investors will analyze market
trends, find upswings in promising industries, and invest the money you contributed into a wide
range of different stocks (Pond 37-42). They will then keep an eye on your money and buy and
sell as needed to make a profit. The investors base their decisions on a high risk or low risk
chart, depending on the plan (high risk or low risk) that was initially chosen when you set up the
A retirement fund is usually set up by companies for their workers, but can also be
individually set up through an investment agency. It is basically a tax free investment, into a
prearranged package, chosen by the worker to invest monthly into stock; similar to a mutual
Stocker sums up investing best by saying, “investment strategy is… based on economic
freedom.” (583). There is no investing if money invested is taking away from paying off debt,
savings, or the budget. Building a base for finances is the most important part in creating a stress
free atmosphere where financial freedom reigns. Steps to exceed financial freedom and move
into making money work for you instead of against you can be accomplished by paying attention
to your money and where it is being spent and saved.
Stocker, Marshall L. “Equity Returns and Economic Freedom”. CATO Journal. 25.3
This is an article that explains the relationship of economic freedom and equity markets.
It also includes ways for investors to look at this relationship and be able to construct strategies
Pond, Jonathan D. Guide to Investment & Financial Planning. New York: NYIF, 1991.
This book is a guide to financial planning. It includes detailed steps in organizing income
and investments by explaining the importance of personal financial planning. Pond has been
recognized as “America’s Financial Planner” and has been awarded with the “Malcolm Forbes
Public Awareness Award for Excellence in Advancing Financial Understanding”, a gold medal
at the “Worldfest International Film Festival” for a program on how people can benefit from new
tax rules, a silver medal at the “Huston International Film Festival” for his program on achieving
financial security, and an “Emmy” award for his contributions to a television series on financial
planning in the 21st century.
Quinn, Jane Bryant. Making the Most of Your Money. New York: Berrybrook, 1997.
This book is a detailed analysis on how to develop “safety nets” for finances.
Throughout the book the author stresses the importance of building a good financial base to build
on. Quinn is known for her writings on finance and how to raise a financially free household.
She has worked as a columnist for “Newsweek”, “Good Housekeeping”, “The Washington
Post”, and “Woman’s Day”. She is also affiliated with the “Phi Beta Kappa Society”.
Khan, Kim. How Does Your Debt Compare?. 4 Jan. 2006. 20 Apr. 2006