The Worst Thing You Can Do With Your Savings And What To Do Instead


&l;p&g;&l;img class=&q;size-large wp-image-81&q; src=&q;http://blogs-images.forbes.com/danipascarella/files/2018/04/ben-white-178537-unsplash-1200×801.jpg?width=960&q; alt=&q;&q; data-height=&q;801&q; data-width=&q;1200&q;&g; Photo by Ben White on Unsplash

&l;span style=&q;font-weight: 400&q;&g;If you&a;rsquo;re stashing all of your savings in a checking account, you are actually losing money. Inflation is &l;/span&g;&l;a href=&q;https://www.cnbc.com/2018/04/07/feds-evans-says-inflation-will-hit-2-percent-and-gradual-rate-hikes-will-be-appropriate.html&q; target=&q;_blank&q;&g;&l;span style=&q;font-weight: 400&q;&g;on track to hit 2%&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; this year and the average yield on an interest-bearing checking account right now is &l;/span&g;&l;a href=&q;https://www.valuepenguin.com/banking/average-bank-interest-rates&q; target=&q;_blank&q;&g;&l;span style=&q;font-weight: 400&q;&g;0.04%&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g;. &l;/span&g;


&l;span style=&q;font-weight: 400&q;&g;That means the prices of the things you buy are increasing at a faster rate than your money is growing.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;So what should you do with your savings instead? &l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Here&a;rsquo;s the &q;Savings Pyramid&q; that I share with my &l;/span&g;&l;a href=&q;https://wealthcoaching.invibed.com/&q; target=&q;_blank&q;&g;&l;span style=&q;font-weight: 400&q;&g;Wealth Coaching&a;reg; clients&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g;. Keep in mind that personal finance is not one-size-fits-all. While this serves as a great starting point for figuring out what to do with your savings, everyone&a;rsquo;s situation is unique and has factors that can change this order, like an employer retirement match or pressing short-term goals. &l;/span&g;


&l;img class=&q;wp-image-80 size-full&q; src=&q;http://blogs-images.forbes.com/danipascarella/files/2018/04/Invibed-Savings-Hierarchy.jpg?width=960&q; alt=&q;&q; data-height=&q;795&q; data-width=&q;1199&q;&g; Invibed&s;s Savings Pyramid

&l;b&g;Emergency Fund&l;/b&g;

&l;span style=&q;font-weight: 400&q;&g;Establishing an Emergency Fund is the first thing you should do when you have some extra cash. Park it in a high-yield savings account so you can earn interest (many banks are currently offering an annual yield of 1.5% or more) and keep adding to it until you feel confident that the balance is high enough for you to handle any financial surprises that life throws your way.&a;nbsp;&l;/span&g;


&l;span style=&q;font-weight: 400&q;&g;At a&a;nbsp;minimum, that should be three months&s; worth of living expenses but feel free to go higher. I have some clients that get peace of mind from being&a;nbsp;extremely prepared and have chosen to save enough to cover an entire year. &l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Once Emergency Fund is checked off the list, you can shift your focus to making your money work for you.&l;/span&g;

&l;b&g;High-Interest Debt&l;/b&g;

&l;span style=&q;font-weight: 400&q;&g;If you have high-interest debt, you should pay it off before climbing the &q;Savings Pyramid&q; any further, aka starting to invest your money. &l;/span&g;


&l;span style=&q;font-weight: 400&q;&g;That&a;rsquo;s because historically, U.S. stocks have delivered an average annualized &l;/span&g;&l;a href=&q;https://www.cnbc.com/2017/06/18/the-sp-500-has-already-met-its-average-return-for-a-full-year.html&q; target=&q;_blank&q;&g;&l;span style=&q;font-weight: 400&q;&g;total return of about 9.8%&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g;. That means for every dollar you invest, you&a;rsquo;d likely be making a return on investment (ROI) of 9.8% or less over time.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;On the flipside, the average interest rate on a credit card is &l;/span&g;&l;a href=&q;https://www.creditcards.com/credit-card-news/interest-rate-report-032818-up-2121.php&q; target=&q;_blank&q;&g;&l;span style=&q;font-weight: 400&q;&g;more than 16%&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g;. So every dollar you put towards paying off your balance is generating around a 16% return because you no longer have to pay that interest to your card issuer. That&a;rsquo;s a much higher return than what you&a;rsquo;d get from investing.&l;/span&g;


&l;b&g;&l;!–nextpage–&g;Retirement &l;/b&g;

&l;span style=&q;font-weight: 400&q;&g;Now that your Emergency Fund is fully stocked and you&a;rsquo;ve eliminated high-interest debt, you&a;rsquo;ve earned the right to start investing. &l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;The first step is to focus on retirement. If you want to maintain your standard of living in your golden years, you should be saving at least 10% of your salary in a retirement account like a 401(k) or IRA. These account types come along with tax advantages that will help you get more bang for your buck.&l;/span&g;


While saving for retirement doesn&a;rsquo;t sound like the most exciting thing to do with your money, especially when you&a;rsquo;re young and retirement is decades away, it&a;rsquo;s extremely important. Think of it as making sure the &q;future you&q; is well taken care of and living comfortably.

&l;b&g;Taxable Investments&l;/b&g;

&l;span style=&q;font-weight: 400&q;&g;You probably have a lot of big goals between now and retirement that will take years to achieve, like buying a home or starting a business. A taxable investment account is a great place to save for these goals because it allows you to generate returns while you continue to save up.&l;/span&g;


&l;span style=&q;font-weight: 400&q;&g;A major difference between a taxable investment account and a retirement account is accessibility. With retirement accounts, it&a;rsquo;s generally difficult to access that money&a;nbsp;without consequences before you reach retirement age. &l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;With a taxable investment account, you can liquidate your investments and use them for whatever you want, whenever you want. &l;/span&g;

&l;b&g;Speculation&l;/b&g;

&l;span style=&q;font-weight: 400&q;&g;If you still have money left over after taking care of all of the previously mentioned items, then you can gamble with speculative investments&l;span&g;&a;mdash;&l;/span&g;if it&a;rsquo;s something you&a;rsquo;re interested in doing.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Speculative investments are high risk/high reward; you either win big or lose big. Some examples include investing in a friend&a;rsquo;s startup, buying cryptocurrency, and day-trading options. &l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Yes, you could make a fortune and your friend&a;rsquo;s startup could be the next Facebook. But it could also fail and your shares could become completely worthless. So before you make a speculative investment you need to be completely comfortable with the possibility that your investment may go all the way down to $0.&l;/span&g;&l;/p&g;

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