February 20, 2020

the types of accounts where your money should be

When you are on your journey of building wealth you learn all about the different types of accounts. It is very important to make sure your money is in the right place so it can work for you and continue to grow. Here are the top 4 types of accounts where your money should be and the reasons why.

Where Should Your Money Be & Why ...

1- Checking Account

- A checking account is an account held at your local bank in which you are able to withdraw your money via an ATM, or simply by going into the bank. You are also able to make payments with your checking accounts via check or debit card- when you use your debit card the money is taken out of your account within minutes. You can only use your debit card or checks if you have money in it (your bank account). Your checking account is usually where your direct deposit lands.

This account should be used for the following;
- Your daily transactions
- Your expenses
- Personal Care/Money
- Food/Restaurants

Bills such as;
- Gas or transportation
- Utilities
- Groceries

Think of your checking account as your cash envelop- if there isn't money there- you can't use it.

2- Savings Account (Traditional)

- Your traditional savings account is also held at your local bank and most of the time if you have a checking account you also have the option of having a savings account. This account is meant for you to "save" like it states in the name. A savings account also accrues interests that are paid to you on a monthly basis.

This account should be used to house the following;
- Your Rainy day fund of at least $1,000
- Car maintenance fund
- Sinking fund for one-time or irregular events
- Short-term goals of under a year

The reason why this account should house such type of savings is because of its easy access since 99% of the time is linked to your checking account. You want to be able to access this money as soon as possible when these situations come up, but you also don't want to keep your long term savings or anything that will happen after a year on a traditional savings account because your money isn't making you any money sitting in this account.

You also do not want to have such easy access to your emergency fund or big savings because easy access means you are more likely to transfer money from your savings into your checking if you spend too much- having your long term goals in a separate savings accounts will remove the possibility of transferring money from your savings to your checkings when you shouldn't be.

For anything that will happen in a year or more- a High Yield Savings account is the way to go.

You Should Also Read: Everything There Is To Know About High Yield Savings Account

where should I keep my money

3- High Yield Savings Account (Online)

- A high yield savings account is a type of savings account that earns you higher interest rates compared to your normal traditional savings account. Meaning, you will get more interest (money the bank pays you for keeping your money with them) in a high yield account than in your normal savings bank.

This account should be used to house the following;
- Your 3-6+ Full Emergency Fund
- Mid-Term Goals
- Long- Term Goals
- Travel Fund
- Anything that you're saving for that could wait 3-5 business day if need be

You Should Also Read: How To Determine Your Exact Emergency Fund Amount

4- Retirement/ Investments

- A few of the most common retirement accounts are 401(k) or Roth 401(k) which are offered by your employer, HSA (Health Savings Account) used for medical expenses, and for investment- offered by your employer as well. A Roth IRA which you can open individually (after-tax money) and IRA (before tax).

A Roth IRA and IRA are a basket (like a savings account), to be able to make your money work for you, you need to pick your investments.

Another type of investment account is a brokerage account- A brokerage account is an arrangement where the investor (you) deposits money with a brokerage firm, and they place the trades on your behalf. With a brokerage account, you invest with after-tax money, but there's no limit on how much you can invest (major pro) and you can invest in what you like such as individual stocks, bonds, trusts, and so on.

You Should Also Read: Retirement Accounts 101

the types of accounts where your money should be

When it comes to accounts types, the main ones you hear about are checking account and savings account, but not knowing about the other accounts and how to use them correctly could cost you a lot of money. Keeping all of your money in a checking account or a traditional savings account is the equivalent of keeping your money under your mattress- it's not growing and losing value.

A checking account comes in handy when you don't want to use cash, but it is not free money, it's actually the same as having cash in your hands just in the form of a plastic card- what you spend is what you deposit in your bank. Going over your budget is the same as you using all of your money on things you don't need- this is where having separate accounts come in handy and having your full emergency fund on a high yield savings account.

You Should Also Read: 12 Step Guide To Succeeding At Budgeting

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  1. This is incredibly helpful information. Shared on twitter!!


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