Saving money is a smart financial habit. To get the most out of this habit, it’s also important to know what to do with your savings. For example, if you leave it all in a checking account, you won’t earn much interest on that money.
So, how should you use your savings? Here are great pieces of advice from five big names in the world of personal finance.
1. “Make a quick switch from a traditional savings account to a high-yield savings account.” — Vivian Tu
Vivian Tu, founder of Your Rich BFF, has a simple tip that can make a world of difference. Don’t leave your money in a traditional savings account paying a rock-bottom rate. Check out the best high-yield savings accounts, pick one, and put all your savings there.
Here’s why: The average savings account rate is 0.47% right now. Some big banks pay as low as 0.01%, while some high-yield savings accounts are offering 5.00% or more. On a $10,000 balance, that’s over $450 more in interest per year just by choosing a better bank account.
2. “The one thing that every single person needs is an emergency savings account.” — Suze Orman
Everyone is going to have financial emergencies. You can’t always avoid them, but as Suze Orman explains, you can prepare for them with an emergency fund.
Set aside a portion of your savings every month for this. The standard recommendation is an emergency fund with three to six months of living expenses. If your household’s living expenses total $4,000 per month, your emergency fund savings goal would be $12,000 to $24,000.
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3. “Invest in an index fund, because it tracks the market.” — Humphrey Yang
You can get a solid return through savings accounts and the top CDs (certificates of deposit) right now. But for long-term wealth building, nothing beats investing.
Former financial advisor Humphrey Yang recommends investing in index funds. As he explains, the stock market has historically averaged an 8% to 10% annual return. All the best stock brokers have low-cost index funds that track the market — S&P 500 funds are a popular choice. These are simple, effective ways to start investing and growing your money.
4. “Invest in as much of yourself as you can.” — Warren Buffett
Investing legend Warren Buffett also talks about the importance of investing in index funds and saving for emergencies. In addition, he has shared the age-old wisdom of investing in yourself.
Don’t be afraid to spend your money in ways that could increase your skills and earning potential. A college education is one of the most common ways people do this, but it’s far from the only option. You could try other methods, such as online courses. Books are another excellent way to improve your knowledge — they’ve helped me quite a bit in both my career and managing my money.
5. “Choose how you want to spend your money — and how to live your rich life.” — Ramit Sethi
Ramit Sethi, author of I Will Teach You to Be Rich, advises people to follow a conscious spending plan. This plan provides a balance between financial security and your quality of life.
He recommends putting money toward savings goals, such as a down payment on a home or a vacation, and investing. But he also recommends spending money on the things you love, through what he calls guilt-free spending. It’s an important lesson that some of the best savers forget. Success isn’t about always saving as much money as possible. It’s about using the money you save to build the life of your dreams.
The consensus among most experts is that you should use your savings for an emergency fund, upcoming goals, and investments. Those are all moves that can help you build financial security. Remember to reserve some of your savings to spend in ways that make you happy, so your money is also good for your quality of life.
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