A key to growing rich is having the right financial accounts in place. Get the scoop on seven accounts that most individuals and families should have for more financial success.
3. Savings account
While checking accounts come with unlimited transactions, that’s not the case with a savings account. You can make as many deposits as you like into a savings account, but you’re typically limited to 6 withdrawals per month.
Savings accounts are the perfect place to stash money for short-term goals like holiday spending, taking a vacation, or buying a car. You can even have multiple savings accounts for different purposes.
A savings account is also the best place for your emergency fund, which is a financial safety net that everyone should have. Think about your emergency money as insurance against life’s unexpected expenses, such as a big car repair bill, a last-minute plane ticket, or being suddenly out of work.
Figure out how much you spend each month on necessities and bills, then multiply that amount by three months. That’s the minimum amount you need to keep on hand and never touch—except in the case of a dire emergency.
Keeping your emergency funds in savings separates it from the rest of your money and earns more interest than you could with a checking account. While it can be tempting to invest your emergency money for higher returns, don’t do it. Keep that bucket of money completely safe from risk so the full amount is there when you need it.
You can open a savings account at the same place as your checking, or use a different institution. Consider a high-yield savings that pay more interest than a typical savings. Use the free Online Bank Comparison Chart to compare the best places to save and earn more money.
4. Retirement account
In addition to having the right banking accounts and products, everyone should use a tax-advantaged retirement account to invest money on a regular basis for retirement. Even if you want to work up until the day you die, you may not be physically or mentally healthy enough to do it.
Social Security retirement benefits can help pay your bills, but the average payout is just a little over a $1,000 per month. To be comfortable you’ll need your own investments to fund retirement, which could last for decades after you stop working.
Since retirement accounts cut your taxes, they allow you to contribute and accumulate as much as possible. The most popular retirement accounts are offered by employers, such as a 401k, 403b, or 457 plan. Many companies include matching benefits, which pays additional contributions when you invest your own money.
If you don’t have a job that offers a retirement plan or are self-employed, just about everyone qualifies for an IRA or Individual Retirement Arrangement. And if you work for yourself, take advantage retirement accounts for the self-employed, such as an IRA, SEP-IRA, or Solo 401k. You might even qualify to use more than one of these terrific accounts.
Just be sure that you won’t need the money before the official retirement age of 59½. Taking early withdrawals typically comes with a 10% penalty in addition to income tax on any amounts that weren’t previously taxed.
By the way, if you want more information about the pros and cons of different types of popular retirement accounts and the best places to get them, download the Retirement Account Comparison Chart, a free one-page resource.