Making the Most of Your Savings Account
How to Optimize Your Money for Wealth Creation
According to the Federal Deposit Insurance Corporation (FDIC), the majority of Americans keep their savings at a brick-and-mortar bank, which means they are most likely not benefitting from the high yield that many online banks are offering. While the median savings account balance in America is $4,500, most Americans are not taking advantage of the high yield rates that many online banks and FDIC insured banks have to offer. This means that Americans are missing out on the potential of creating billions more in collective net worth if they were to put their money to work by investing the interest earned from their savings accounts. If what I have to say is not convincing enough, here are a couple of quotes about why it is beneficial to invest, automate your savings accounts, and invest the interest accrued from your savings accounts. Oh, and you will also find a few ways you can increase your savings rate for even greater financial security. As the gentleman from OxiClean use to say, “But wait, there’s more!”
From the GOAT himself, Mr. Warren Buffet said, “The biggest mistake investors make is not investing enough in their future”. We are often more concerned about what others think about us and how successful we look instead of investing that money to actually become more successful. So, use the extra money that you have to invest in yourself instead of making it look like you are wealthier than you are to impress people that don’t even matter!
Saving money is great, but what you do with that money is even more important. Always make sure you are putting every dollar to work, otherwise inflation will always beat you to the punch. And lately, inflation is beating everyone to the punch. As Suze Orman once said, “Saving money is important for providing financial security, but it’s even more important to put those saved funds to work by investing them wisely”. With this knowledge, here are a few ways to increase your rate of saving money, in addition to how to have that money work for you.
Automate Your Savings: Set up an automatic transfer from your paycheck each month into a separate savings account so that you don’t have access to those funds and can’t be tempted to spend them. This will force you to save, rather than spend, which will allow your funds to accumulate faster.
Pay Yourself First: When budgeting, make sure you pay yourself first before allocating money towards bills or other expenses. Putting aside at least 10% of your salary into a separate savings account will help ensure that you always have some cash reserves for unexpected expenses, emergencies, or investment purposes.
Live Below Your Means: Living below your means truly means spending less than what you make on a monthly basis so that there are extra funds available for saving or investing purposes. This could mean cutting back on eating out or shopping trips in order to free up additional funds and increase your savings rate over time. The goal is to not have to do this forever, but if you never prioritize your savings and investments, you will either always have to live below your means or you will go into debt attempting to live a lifestyle that you cannot afford.
Invest the Difference: Now that you have structured your savings and spending habits, be sure to maintain those behaviors and invest at the same rate that you were saving. Meaning, if you were able to save $200 a month and achieved your savings goal, continue those habits and continue investing that amount. In addition to that, if you move the majority of your savings into a high yield savings account, you can invest the interest that you get each month. So, not only will your money in your savings be working for you, but the interest you made from your savings account will now be working even harder in an investment account.
Many Americans do not take advantage of these structures because most are not aware they even exist. By allocating funds, creating structures, and putting automation to work, it is one of the easiest ways to creating personal and generational wealth. Investing the interest earned from a high yield savings account is one of the best ways for Americans to create wealth and secure their financial future, especially if there are funds already sitting in a standard savings account losing purchasing power every single year. By using strategies such as automating your savings, paying yourself first, and living below your means, individuals can significantly increase their overall net worth while also ensuring they have enough funds on hand when needed most. Taking these steps now can lead towards a more stable financial present and future.
This is not financial advice. For educational purposes only. Before making any financial decisions, consult with a professional.
