Accounts That Organize and Grow Finances

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Having multiple bank accounts is the mantra of many financial gurus. And that is an important way to organize and implement a budget. But other accounts should be in your financial toolbox.

Looking at your financial goals and organizing your money appropriately is essential. Various bank accounts can help. But these should be combined with other financial accounts. What accounts should you have, and how do they work together?

Checking Accounts for Day-to-Day Expenses

This checking account is for frequent usage. Although you may deposit all your earnings in it, quickly divide those dollars up into other accounts.

Your day-to-day checking account is the account your ATM card should be attached to. It should be used only for frequent expenses, such as:

• rent or mortgage
• utilities
• groceries
• gas
• eating out
• clothing

Your monthly budget should indicate how much money to keep in this checking account. You don’t want to keep any more funds in the account than you absolutely need to live. That way, you won’t be tempted to spend more than what you have budgeted.

Checking Account for Periodic Fixed Expenses

This is your reserve spending account. It is not used for day-to-day expenses, but it is used for ongoing expenses. This is where the big recurring expenses are paid.

Some recurring expenses could be:

• property taxes
• auto insurance
• home insurance
• life insurance
• income tax estimates
• etc.

If you sock away funds in a separate account, they will be there when needed. Transfer the money out of your primary checking account monthly, and pay these larger expenses with it.

You can track them more efficiently by not mixing it with your everyday expenses. It will ensure that funds are always available.

High-Yield Savings Account

A high-yield savings account works like a regular one, but pays a higher interest rate. Eighty percent of Americans don’t have a high-yield savings account. They are leaving money on the table.

A high-yield savings account can be the difference between earning dollars to thousands of dollars.

As of August 2023, the Federal Deposit Insurance Corporation (FDIC) stated that the average interest rate in the United States was 0.43 percent. This compares to the highest interest rate, which was 4.22 percent. Keep in mind that savings interest rates fluctuate with interest rates established by the Federal Reserve.

Online banks have higher interest rates than their brick-and-mortar counterparts. This is because they don’t have to maintain a branch structure and overall lower overheads. Although a brick-and-mortar may have more services available, if you don’t mind, you have the potential to earn more interest from online banks.

For example, although they may vary by state, Bank of America’s annual percentage yield (APY) rates go from 0.01 percent to 0.04 percent, depending on your account type.

Online bank SoFi has a 4.40 percent APY and can go up to 4.50 percent depending on the account type. Online banks are FDIC insured just like brick-and-mortar banks. You have the same up to $250,000 guaranteed.

Work Sponsored and Self-Employed Retirement Account

Most people know they should enroll in their employer’s 401(k) plan. It’s the easiest way to save for retirement. There’s also the advantage of tax-deferred contributions. A pretax contribution brings down your overall income in the eyes of the Internal Revenue Service.

Many employers will match up to a specified percentage. So, if your employer matches up to 3 percent and you only put in 3 percent, you’ve doubled your savings. Even if you’re cash-strapped, 3 percent won’t usually be missed. It’s worth it not to leave money on the table.

If you’re self-employed, investigate an IRA or Roth IRA. It won’t be pre-taxed, but since it’s already had the taxes paid, you won’t be taxed on the funds if you make qualified withdrawals after you retire.

Health Savings Account

Often, a health savings account (HSA) is overlooked as an investment account. But it’s a unicorn among pre-taxed benefits.

You contribute to the HSA tax-free. The money grows tax-free, and when you make a qualified withdrawal, it’s tax-free. No other account works like this.

It’s used to pay medical expenses. These include but aren’t limited to:

• eyeglasses and contacts
• copays
• medical transportation
• telehealth
• hearing aids
• over-the-counter medications
• acupuncture
• chiropractic care
• etc.

In 2023, an individual can contribute up to $3,850, and a family can contribute up to $ 7,750 per year. Those people over 55 can contribute an additional $1,000.

The one caveat is that you must be in a high-deductible health plan. The deductible must be at least $1,500 for an individual and $3,000 for a family.

Brokerage Account for Long-Term Goals

A brokerage account is ideal for mid-term and long-term financial goals. It allows you to invest in a wide range of products. These include bonds, stocks and mutual funds.

There isn’t a tax advantage to investing, with one exception. If you hold your investment for over 12 months, you may be eligible for the long-term capital gains tax rate. This rate is usually lower than the ordinary tax rate.

But check with your financial adviser and tax attorney before investing or selling.

Use Various Accounts to Achieve Financial Goals

Remember to set financial goals when setting up your accounts. Use the accounts in conjunction with a budget.

Take advantage of pretax plans to lower your tax liability and enjoy the benefits of growing your money.

And, finally, once you’ve maxed out your pre-taxed accounts, consider a brokerage account.

The Epoch Times copyright © 2023. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.