- If you’re keeping money in the right place, your money will be growing, you won’t feel nervous about it, and you’ll know what your plans are.
- If your money is in the right place, your savings account will be growing on its own, and your checking account won’t have loads of money missing out on growth.
- You’ll also have full emergency fund separate from your other savings, and you’ll have the right amount invested to match your comfort with risk.
If you have ambitious financial goals, keeping your money in the right places is essential.
However, the right places are different for everyone. If you’re keeping your money in the right places for you, you’ll have a clear understanding of where money should go when it comes in, know how it will grow there, and what you plan to do with it in the future.
Here are five signs that you’re keeping your money in the right places.
1. You Have a Full Emergency Fund
If you have a full emergency fund, you won’t have to worry about taking on credit card debt or needing a loan if you suddenly lose your income or face a medical emergency, for example.
For most people, a full emergency fund looks like three to six months worth of expenses in a safe, accessible place like a high-yield savings account, depending on your personal needs. If you wanted even more security, you might consider grow your savings account to a full year’s expenses.
2. The Markets Aren’t Keeping You Up at Night
For most people, experts recommend a long-term investing strategy to build wealth over time. A key part of that strategy is not needing the money you’ve invested to pay your bills in your everyday life. That way, you can leave your investments alone as the stock market rises and falls and makes up for losses over time, rather than sweating every dip and valley.
If you’re confident in your investing strategy and can resist the urge to pull money out when the market drops, you’re probably keeping your investments in the right place.
3. Your Cash Savings Are Growing on Their Own
If your cash savings are growing each time you check, you’re probably keeping them in the right account. Not all savings accounts earn much interest — the average interest rate for a savings account is .07%, according to the FDIC. If you are saving in the right account, your money may earn much more interest than that.
Even though interest rates on high-yield savings accounts have dropped in recent months in response to the Fed repeatedly lowering the federal funds rate, they generally still earn over 1% interest, and that rate should rise along with the federal funds rate in the future.
The other part of growing is through regular deposits — setting up automatic transfers into your savings account on a regular basis means your balance should be rising each time you check in. If you’re keeping your savings (whether that’s your emergency fund, future down payment or something else) somewhere they’re growing when you aren’t using them, they’re probably in the right place.
4. Your Checking Account Balance Isn’t Giant
Checking accounts are meant to be a stopping place for your money as its on its way somewhere else. By constantly moving money away from your checking account, you can allow it to grow in other places.
While many checking accounts don’t typically earn any interest, the interest rate among those that do earn interest is an average of .05%. Money could be working harder and earning interest in a high-yield savings account or an investment account. Setting up automatic transfers from your checking account into other higher-earning accounts will make it effortless.
5. You Have a Plan for Your Money
If you have a plan for your money, you’ll know exactly where it should go. Without one, it’s not only hard to stay motivated to save or invest, but it will also be hard to tell what type of account your money should be in.
Your plans should play a role in deciding where to keep money. If you’re saving for the down payment on a house that you’d like to buy in the next few years, your money probably shouldn’t be in an investment account — it won’t have time to recover potential losses. Similarly, money you’re earmarking for retirement or the distant future shouldn’t be sitting in a high-yield savings account — it could grow more over the years through investing.
If you know your goals and approximately when you’d like to meet them, it’s far easier to know that your money is in the right account.
The views of the author of this article do not necessarily represent the views of Gradifi. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained here. Readers should consult their own attorneys or other tax or financial advisors to understand the tax, financial and legal consequences of any strategies mentioned in this article.