One Thing to Never Do With Your Savings and 4 Things You Should Always Do, According to Financial Experts
You’re doing what you can to save money — you contribute to a savings account and try your best to refrain from dipping into it. But is the best thing to do with your savings really just “set it aside and forget about it?” According to these financial experts, no! Simply not spending money is half the battle, but stopping there is a common mistake.
You could be doing a lot more to take advantage of your savings, from tiny tweaks that you’ll barely notice to big changes that can maximize your efforts in the long run. Below, discover four things financial experts say you should always do with your savings to build a balance and weave a stronger security net for future you.
Pay yourself first.
Almost every expert who shared their wisdom for this piece noted automation as the most important thing to do for successful saving. When you set up automatic transfers, it takes yet another to-do task off your plate and gets the saving done without you even having to think about it. “Consider your savings the most important bill or invoice you have next to your rent or mortgage and utility bills,” says Mark Williams, CEO of Brokers International. “Set up an auto draft that moves money from wherever you deposit your paycheck into your savings funds.”
According to Ashley Feinstein, author of “Financial Adulting,” waiting until the end of the month isn’t the best time to kickstart saving. If you’re just starting out on your savings journey, she recommends setting up an automatic transfer — even just $5 a month — to keep a consistent flow of cash going to the account. “By making our savings automatic, we pay ourselves first,” she explains.
You can also look to apps and tools to help you build up that balance. “I like tools that automate savings to help you keep building on what you’ve already put away,” shares financial expert Andrea Woroch, citing Chime Bank’s RoundUps and apps like Stash and Acorns, which round up purchases you make to the next whole dollar and invest them for you.
Open a high-yield savings account.
A high-yield savings account is a secure place to keep your emergency fund or can’t-touch-this savings. They typically offer a higher interest rate to help your money grow more, making them a smart option if you’re looking to beef up your bank account. “Move your savings from a traditional bank to a high-yield online savings account where you will get a better return on your money,” says Woroch. “Not to mention, this will keep your savings separate from checking so it’s out of sight and out of mind, and you will be less tempted to spend it.”
Give each dollar a job.
You can create several savings accounts to fund different goals, from retirement to a vacation. “I love separating my savings account into sub accounts so I know what each dollar is for,” Feinstein says. “Otherwise, it takes work to keep track of how much is for my rainy day fund versus my next vacation or whatever else I’m saving up for. Naming accounts is also a great way to increase our motivation.”
Invest it and grow it.
“It’s really important to keep our short-term goals (like a vacation) in cash, but for money we won’t be using for a long time, like retirement or other goals in the future, we want to invest that money so it can grow and compound for us,” explains Feinstein. “For many (myself included!), investing can seem daunting and risky, but it’s critical to building wealth. If we’re not investing, we’re missing out on thousands of dollars over the course of our lifetimes.”
Williams advises taking advantage of any employer-sponsored retirement accounts with matching, as that’s “free money” for your future. “If you have longer than 10 years before retirement, do not make knee jerk reactions to interest rates or market fluctuations,” he explains. “The market has historically performed well over time. If you liked your long-term plan a year ago, stick with it.” If you don’t have a retirement savings plan in place, it may be a good idea to book time with a financial planner or ask a financially savvy friend or family member to help you get started.
Sumeet Sinha, founder and CEO of FinLightened, agrees — and shares that there are plenty of options for investing, even if you don’t have a ton of cash to start with. “You should also look into any tax-advantaged accounts that you can use to squirrel away some of your income — 401k, IRAs, HSAs, 529s,” he says. “As a general rule, it’s a good idea to max out your employer’s match and your tax-advantaged accounts before putting anything into taxable accounts. As for what to do with your taxable accounts, I like to invest in index funds and dividend-paying stocks, both of which are (in my opinion) relatively tax-efficient.” If you have $1,000 to invest, Sinha suggests opening a Roth IRA. “Roth IRAs allow you to pay taxes now, rather than when you withdraw from it,” he explains, while regular IRAs required you to pay taxes upon withdrawal.