The 4 Accounts Every Wealthy Woman Needs
Building wealth to support your life now and later requires a little strategy. It also requires having multiple accounts that can support you in your day-to-day life, and your future.
There are four main accounts every #WealthyWoman needs to have for financial security.
Read on to see if you have all four, or which ones you need to open and start to prioritize!
1: An Account for Spending: Checking Account
First up, we have a checking account. This is where you deposit your paycheck and pay your bills from. Having a checking account provides you with a few key benefits:
Convenience: A checking account allows you to make purchases, pay bills, and withdraw cash easily and conveniently. You can use checks, debit cards, or online banking to access your funds.
Security: Keeping your money in a checking account is safer than keeping cash at home or carrying it with you. Most banks offer fraud protection and reimbursement for unauthorized transactions.
Direct Deposit: Many employers require direct deposit for payroll, which means your paycheck can be automatically deposited into your checking account, making it faster and more convenient to access your funds.
Automations: You can automatically set up bill pay, or contributions to your savings accounts. Many checking accounts have the option to set this up one time so you don’t have to manually move your money each month.
Checking accounts is where your income should land and from there you can disperse it into your various other accounts—be it for bill payment, your savings or your investments.
One important note: It's important to have a checking account that doesn't charge you any fees, so you can keep more of your hard-earned money. So be sure to read the fine print on your account!
2. An Account for Saving: High Yield Savings Account
Next, we have a high-yield savings account (HYSA) for your emergency fund. An emergency fund is 3 - 6 months of living expenses that you can cover. An emergency fund can cover things like—car repairs, medical bills, or an unexpected vet bill. It’s also there if you unexpectedly lose your job.
You want to make sure your emergency fund is easily accessible, so it's important to choose a HYSA that has no withdrawal fees or minimum balance requirements. And remember, an emergency fund is for emergencies only, so try to avoid dipping into it for non-urgent expenses.
A HYSA typically pays a higher interest rate then a traditional savings account, (read: you earn more money by using a HYSA). Here are the reasons we like them:
Higher interest rates: HYSA typically offer higher interest rates than traditional savings accounts (think 10x more). Which allows your money to grow faster over time.
Low risk: You might be asking, okay but what is the catch? There isn’t one. They are low-risk. HYSA are FDIC-insured, which means that your money is protected up to $250,000 per depositor, per insured bank.
Accessibility: Just like a checking account a HYSA is easy to access and offers quick access to your money when you need it. You need to read the fine print on the bank you choose to go with, You can usually withdraw money at any time without penalty or fees, making them a good option for emergency savings.
No minimum balance requirement: Again, read the fine print! But many HYSA do not have minimum balance requirements, allowing you to open an account with a small deposit.
No monthly fees: Many traditional savings accounts charge monthly fees! But many HYSA do not have monthly maintenance fees, which can help you save money on fees and charges.
HYSA’s can also be used for more than just an emergency fund. You can use them for things like…
Near Term Goals
A near-term goal is anything you hope to accomplish in the next 0 - 3 years. This could be saving for a house downpayment.
Slush Fund
You could also have a HYSA for other discretionary expenses aka a slush fund. Things that don’t happen monthly, but you do find happening every year. Things like saving for travel, oil changes for your car, birthday presents for your family, your hobbies, and so on.
3. An Account for the Future: Retirement Accounts
Third on the list is retirement accounts. Retirement accounts like 401(k)s and IRAs allow you to save for retirement in a tax-advantaged way. These accounts typically have rules and stipulations on contribution limits and when you can access the money. Let’s break these two options down.
401(k)
A 401(k) is a retirement account that you can receive as part of your employment benefits from your employer. It allows you to invest part of your income in this account. Here are some reasons why having one can be beneficial:
Employer matching contributions: Some employers offer a matching contribution to your account. This means that if you contribute a certain percentage into your account, they will match that percentage too! This is free money and a benefit of your employment if offered to you, so be sure to contribute up to that matching percentage.
Tax benefits: Contributions to a traditional 401(k) are made with pre-tax dollars, which reduces your taxable income for the year. Additionally, the money in your 401(k) account grows tax-free until you withdraw it in retirement.
Automatic contributions: Many employers offer automatic payroll deductions, which means that a portion of your paycheck is automatically contributed to your 401(k) account. You don’t have to think about the money, as it automatically gets allocated to your account.
Portability: When you leave your employer, you can take your 401(k) account with you and roll it over into an IRA or a new employer's 401(k) plan. Or roll it over into a IRA.
IRA
An Individual Retirement Account (IRA) is a type of retirement savings account that allows individuals to save for retirement on their own, outside of an employer-sponsored retirement plan. Here are some reasons why having an IRA can be beneficial:
Tax benefits: Contributions to a Traditional IRA are tax-deductible, which means that they reduce your taxable income for the year. Additionally, the money in your IRA account grows tax-free until you withdraw it in retirement.
Another option is a Roth IRA. If you opt to do a Roth IRA, the money you contribute would be after-tax money. This money would then grow tax-free and not be taxed at retirement.
Flexibility: IRAs offer more flexibility than employer-sponsored retirement plans. You can choose your own investments, and you can open an IRA at any time, regardless of your employment status.
Early withdrawal options: While early withdrawals from an IRA are generally discouraged, IRAs offer penalty-free withdrawals for certain situations.
Both IRA and 401(k) accounts allow you to invest your money in a range of options such as mutual funds, stocks, and bonds. Investing allows you to diversify your portfolio to potentially increase your returns so your money can grow. By contributing to your 401(k) and/or IRA regularly, you can build a significant nest egg for your future.
4. An Account for Mid-Term Goals: Brokerage Account
Last but not least, you should have a brokerage account to invest in. Brokerage accounts are taxable investment accounts (read: earnings are taxed). There are some key benefits that make having a brokerage a smart money move for all women.
Flexibility: Unlike retirement accounts, a taxable brokerage account has no restrictions on when you can withdraw your funds. This makes it a good option for mid-term savings goals (things 3 - 7 years away).
Tax-loss harvesting: A taxable brokerage account can be used for tax-loss harvesting, which involves selling losing investments to offset gains in other areas of your portfolio. This can potentially reduce your overall tax liability.
Potential for higher returns: While investments in a taxable brokerage account are subject to taxation, they also have the potential for higher returns than traditional savings accounts or other low-risk investments.
Similar to your retirement accounts, the benefit of this account is that you can invest your money in stocks, bonds, and other assets to grow your wealth over time in a brokerage account. It's important to choose a brokerage account with low fees and a user-friendly platform. And remember, investing is a long-term game – don't panic when the stock market dips, and don't try to time the market. Just focus on investing regularly and staying diversified.
Ready to become a #WealthyWoman?
By having these accounts in place, you'll be well on your way to building long-term wealth and financial security.
Keep in mind, you don’t need to open all of these at once. Take it one account at a time, there is no need to overwhelm yourself by making too many financial decisions at once.