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“Guys it s chelsea from nthe financial diet and this week. We are going nto nto be talking about something that s pretty foundational nto. Everyone getting better with money nthat. We don t always take time to explore in depth.
And that is the different nkinds of savings accounts that everyone nshould have and what you should be doing with them. And if you feel like you nare someone who is really behind in your nsavings goals. Please remember that that makes nyou a normal american and that americans in general nare struggling with savings in fact 57 of americans have nless than 1000. In savings and 39 of americans nhave no savings at all so i want to talk to you nabout the kinds of savings that you should have in nrelative order of importance so that you can start nto think in terms of how you make your money work nboth.
Shorter and longer term. There s no overnight solution nto getting good with money. But being strategic and even njust opening these accounts and putting your first ninitial dollars in them is one of the most neasy first steps that you can take toward ncreating. A life that is holistically nbetter with money one that s more safe nsecure.
Predictable and under your control savings are not just dollars nsitting in an account. They re options nthey re freedom and they are your future. So let s get right into it nwith. The four essential savings accounts.
Everyone needs number one is your nemergency savings. Now if there s none subject that we tend to harp on more nthan. Any other at tfd. It is the immense importance nof.
An emergency fund and we suggest that nyou create this before you even nstart aggressively repaying debt or making nany other big moves toward your financial nfuture because the truth is without an emergency nsavings account literally any unexpected nproblem in your life from losing your job nto getting injured. Without the right ncoverage to even just having to unexpectedly nmove can literally destroy your finances this money is there nfor you to tap into when something unexpected nhappens. So that you don t have to for example put it on a ncredit card. You can t pay back borrow the money on nreally terrible terms or simply not be able to ndeal with that problem and go into debt or collections in the case of needing nit to move unexpectedly not having that savings could nliterally leave you homeless.
But despite its nimportance emergency funds are not as universal as you nwould think they would be in fact. Only 30 of millennials nhave. An emergency fund that can cover three nmonths of expenses. And that is about the naverage amount recommended to have in this account.
It s easy to think of nfor example in terms of losing your job nit would allow you that three month buffer to nnot be evicted from your home or not be able to feed yourself. And when we say your bare minimum just nbeing able to live and pay your bills expenses. It s not a fun three months this lack of emergency nfund directly explains why about nhalf of americans are an unexpected 400 expense nfrom. Serious financial ruin.
That simple 400 expense could nleave them literally unable to pay the rest of their nbills. Including the one they need to live in their home. And while your emergency fund nmust be in a normal savings account that is ntotally liquid. Which means you can take that nmoney out at any time hence break break in ncase of emergency.
I recommend personally nthat you keep this savings account. Nat. A bank totally separate from your nchecking account. Especially.
If you re nsomeone. Who like me has a hard time really meeting. Nthose savings goals. Without just siphoning off a little here.
Nand there because why not having that money nnot be in any way attached to your card or neven the bank account linked to your debit card nmeans that you really have to go out of your nway to take that money out on a day to day basis. And that could be the ndifference between keeping that 50 in there nor transferring that 50 out of your emergency nfund to pay for a night out with friends. There are high yield savings naccounts options. Which are still totally liquid nand.
We ll link you to that in the description. But do keep in mind that nthe. Most important thing is that this money be navailable in an emergency. So tying it up in a nlonger term for example retirement account.
Which has nserious penalties to taking out the money early is a mistake. But above all whether nyou re able to put 20 of each paycheck ninto your emergency fund until it s full up or you ncan only afford to put in 5 a month. It needs to be nyour savings priority. If you don t have nan emergency fund.
You should consider yourself nin. A state of emergency. Number two is nretirement savings now i put the retirement nsavings account. Immediately after the emergency fund nin terms of importance because in addition nto retirement savings being incredibly nimportant.
They re also some of the nmost. Potentially advantageous savings. Naccounts that you can have many of them are ntax advantaged and some of them even come with an nemployer match. If you are one of the people who nhas a 401 k.
Available to you at work you should be ntaking advantage of it particularly if there nis a match available. And what that means essentially nis that for every dollar you put into that naccount your employer will match a certain amount if it is at all npossible for you to do you should be maxing out that nmatch because it s frankly free money and if you don t have naccess to a 401 k . There are many other individual nretirement accounts or iras available to you and in the retirement. Naccount field.
There s actually a bit of good nnews compared to how not great. The news is for emergency funds around 82 of millennials are ncontributing to their 401 k s. Along with about n77 of gen xers. And this is great because ninvesting early gives you one of the biggest financial nadvantages.
Possible. Which is a lot of ntime for that money to accrue compound interest if it is at all npossible you should be contributing to nyour 401 k. At least to the top of your match and beyond that you can ncontribute more to your 401 k or you can open an additional nretirement account there are many different ntypes of retirement accounts depending on your needs and you can either do nthat research yourself and we ll link you nin the description to a great explainer on the ndifferent types of retirement accounts. Available or you could speak with na financial.
Planner and remember that one of nthe. Most important things to keep in mind with nretirement accounts is that unlike your nother savings accounts. These are accounts that nyou should never ever touch. If you can at all avoid.
It there are a few nrare cases in which there is more advantage nto breaking a retirement account to make a different nfinancial decision with that money but in the vast vast nmajority of cases. It should never be done nbecause. The tax benefits that come with a retirement naccount only apply when you let that account come to maturity. If you take that nmoney out early it is fully taxed and penalized the entire tax advantaged nsystem exists.
So that that money will nstay in these accounts for a long time. Which is nbeneficial to the country for many reasons generally speaking that nmoney in your retirement account. While it is great nto look at from time to time and watch your net worth ngrow and all of that stuff should never ever be treated as nmoney that is available to you and while it can sometimes nfeel hard to imagine as a young healthy nsprightly active person you will one day nbe of the age where that money will be available. Nto you and you will need it so.
A retirement. Naccount is a must number three is nshort term savings. Now. This is all of nyour savings.
That should be in a liquid or nreadily. Available account. But which are not nyour emergency fund and it s very nimportant that when you are using savings accounts. Nfor short term saving goals like you re saving for a ntrip or maybe.
Some new stuff for your apartment. Or even nto move to a new apartment. It should never be in the same naccount as your emergency fund when those amounts nare conflated. It s easy to overdraw and it s also easy to not really nknow on a day to day basis.
What money is for nthat emergency fund and what money is for that goal. Many people find it nvery helpful to have many savings accounts for many ndifferent short. Term savings goals and especially going in and nchanging. Those account names from some random generated nnumber to the name of that goal can be very very helpful in nkeeping that goal top of mind.
Which helps you when you re ndeciding between spending 20 on some fast fashion top or nputting. It toward that bigger longer term goal. But to happen. Within a year is still nconsidered a short term goal in the money world of course you want to nuse the same strategy as with your emergency fund to nfind the higher yield accounts.
But they still should nbe accessible to you because if you need to get nthe money out in six months. You don t want to be in an naccount that would penalize you for doing it we have tfd contributors. Who nliterally have up to 20 savings accounts that they re using for ntons of different things. Which not only allows them to clearly nsee.
All the different goals and how close or far away. They nare from hitting those goals. But also allows that money to nbe totally in clean categories and not mixed up nwith one another where it s hard to really nsee. What money is for what that multiple savings account.
Nstrategy is especially useful if you re someone who has a nhard time reaching your goals. The less disciplined nyou are with saving for specific things nthe more likely you should be using each naccount for a different goal and lastly. I do still nencourage that you keep your savings accounts naway from the bank that you use for your nchecking account when it s super easy to just nreach into that other account and grab out a little nmoney. You will do it much more often.
Than you think the last category is nlong term savings accounts. Now these are for nall of your goals. That are somewhere between nthat short term stuff and the retirement account. Generally speaking.
Nthis is stuff that you re planning for about nfive to 10 years down the road for many of us it might be nthings like buying a home or going back to school or nmaking. Some really big life change and for this kind nof goal you re going to want a mix of those nhigh yield. Savings accounts and some investment accounts nwhich are not retirement accounts. It should be said as dan kellermeyer of new nheights financial planning puts it be used for savers.
Who don t nneed that money for at least five or 10 years if you want to save for a down npayment on your house in three years. An investment account nmay bring much higher returns. But you risk nactually losing money in the market. A mix of different accounts nfor these longer term goals.
So that you re able nto better weather. Those potential nfluctuations in the market for these kinds of ngoals and especially being strategic about the nkinds of accounts. You re using this is an area where it ncan be beneficial to speak to a financial planner. But if that s something nthat s not in your budget.
We ll also link you nin the description for a good explainer on saving nfor. These medium term goals in the way that best hits nthat balance between higher returns and lower risk. And whichever savings ngoal you re working toward or account. You re nfeeding into do remember that one of the nmost important things when it comes to any savings.
Ngoal is to make sure that money is automatically ndeducted from your paycheck. If at all possible you should not see nthat money and have to physically move it over nbecause. A you may forget to do that as many of us do. But also b in that nactual movement.
You are so easily ntempted by other things that you could do with that nmoney that would be maybe more immediately satisfying any time you leave nit up to human error to make sure that money ngets into the right account you re giving it another nchance to not actually make it all the way into savings. A balanced goal oriented. Nsaving strategy is one of the biggest keys to nlong term financial health and starting with an nemergency fund and even just putting. 5.
A month ninto that account it s something that is naccessible to everyone it may seem like a goal that nis so far away from you today to have a healthy retirement. Naccount or a full up emergency fund or a few ndifferent long term and short term savings goals. But everyone has to start nwith that first step and that first dollar ninto. The account and often opening that account nitself can be half the battle.
And if you re ever looking for nmore tips and strategies on how to get better with money non. An everyday basis. You should check out the nfinancial diet on instagram by clicking the link in nour description or going to ninstagramcom. Thefinancialdiet as always guys thank nyou for watching.
And don t forget to hit nthe subscribe button. And to come back every ntuesday thursday and friday for new and awesome videos. ” ..
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