Saving money isn’t just about setting cash aside for a rainy day, it’s about putting your money to work for you. A strong financial foundation includes different savings accounts tailored for your various life goals, from emergencies to retirement.
By strategically diversifying your savings, you create financial security and flexibility that can meet your needs for security and planning for the future. Keeping all of your savings in one account can make it harder to track your progress toward achieving specific goals.
Allocate funds to different accounts to stay organized and ensure every dollar has a purpose. This will reduce stress and set you up for long-term success. All this information is for educational purposes. Be sure to contact your financial advisor before deciding on your accounts.
High-Yield Savings Account (HYSA). This is a powerful tool for short term financial goals. Unlike traditional savings accounts, HYSAs offer higher interest rates, which helps your money grow faster while remaining accessible. This account is ideal for emergency funds or short-term savings with a better return. To maximize the benefit of this account, look for an option with no monthly fees and a competitive annual percentage rate (APY). It’s fun to watch your money grow automatically each month!
Health Savings Account (HSA). This triple tax advantaged solution was put in place to manage healthcare costs. All contributions are tax-deductible, and earnings grow tax-free. Withdrawals for qualified healthcare expenses are also not taxed.
Emergency Fund. Life is unpredictable, and an emergency fund will serve as a buffer against unexpected expenses like medical bills, car repairs, or worst-case scenario, job loss. The recommended savings amount is at least 3-6 months of essential expenses in an account that you can access easily, like a high yield savings account (HYSA) (see above) or money market account. Automate your contributions to help you build this safety net consistently over time.
Sinking Funds. This type of savings account is dedicated to your planned expenses. Think, holiday shopping, vacations, and home renovations. By setting aside money incrementally, you can cover these costs without making any shifts to your budget.
Retirement Accounts. Depending on how old you are, retirement may seem really far off, but the sooner you start saving, the sooner you will see long-term growth from your investments. Your employer may offer to match your 401(k) contributions, and you can max out your HSA as a supplemental savings resource for medical expenses later in life. Prioritizing these accounts ensures financial independence as you age. Stay tuned for our upcoming blog, Retirement Savings 101. (link to reminder sign up form)
Certificates of Deposit(CDs). A CD can be a good vehicle for your medium-term savings goals and grow your money with a fixed interest rate. With terms that range from a few months to several years, CDs provide guaranteed returns without market risk.
Hot Tip: Staggering investments into multiple CDs with different maturity dates enhances flexibility while optimizing earnings. This is called a CD laddering strategy.
Brokerage Accounts for Non-Retirement Investing. Beyond traditional savings, with brokerage accounts, you can invest in stocks, bonds, and mutual funds without contributions and take on a little more risk for greater earning potential. These accounts are also easier to access than retirement accounts but are excellent for building wealth over time. Be sure to get an understanding of the tax implications and investment strategies by talking to your financial advisor.
Child Specific Savings Accounts. Not everyone knows this, but there are specific savings accounts that can help you plan for your child's future while providing a financial benefit to you. A 529 plan is a tax-advantaged account that allows you to save for college expenses. UTMA or UGMA accounts allow minors to hold investments for future financial needs. These options help parents and guardians invest in their children’s education and long-term financial security.
There are many tools out there to help you save smarter and make the process effortless. Consider automating your savings contributions and using budgeting tools like our partner Piere to help you categorize expenses, track progress and optimize savings habits to help you stay consistent and make every dollar serve a purpose.
Building a solid financial foundation starts with strategic saving. By diversifying your savings efforts into specialized accounts, you will remain clear about where you are and have confidence in your financial future. Whether you are preparing for an emergency, healthcare costs or retirement, you will be empowered to control your financial future.
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