January 10, 2023

Savings Accounts and Financial Wellness

With high-yield saving accounts gaining in popularity again, now is a good time to revisit the critical role a savings account can play in your financial wellness goals. Some social media influencers like to proclaim “cash is trash” in the name of percentage returns, but the fact is that having a healthy level of liquid savings can be the “ace in the hole” for one’s financial portfolio. 

Why? 

  • Debt Management: It can be so discouraging to have finally paid down a credit card, only to need it for an emergency and see that balance go right back up. Appliances go on the fritz, cars need maintenance and unexpected price increases can upend the most carefully maintained budget. Having an emergency savings account allows you to pay off that surprise expense with cash and avoid the high interest debt. 
  • Peace of mind: It is often said that the best return on your money is the good night’s sleep you get with a financial buffer. For example, you may want to make the commitment now to getting ahead of living paycheck-to-paycheck, with the longer-term goal of being able to automate your bill payments. The ability to do so without the worry of a mistaken overdraft is an immensely satisfying feeling and significantly boosts our overall mental wellness. 
  • Investment protection: One of the best ways to protect your investment account is to have a safety net of cash in savings.  Piling all your money into stocks and bonds will theoretically offer the highest return over the long haul, but the last thing you want to do is “sell low” if you need to tap into those investments when the market is down because you have no other alternative. Not so coincidentally, it’s usually when the market is down that your need for cash is highest. 
  • Short-intermediate term goals: Are you saving toward a car, down payment for a house or a vacation? The stock market may be too volatile in the shorter term (less than five years, minimum) to risk one’s money in search of growth, depending on your risk appetite. Use a savings calculator to plan out what you’ll need and budget appropriately.
  • Freedom: You’ve been offered the opportunity of a lifetime and have the money saved to take advantage...or you’re staying in an unfulfilling job, or even worse a job that creates anxiety, because you have no choice financially. Building a cushion so that you know you have the flexibility to look for and move to the right place for you, without needing to worry about the immediate financial impact, is life-affirming. 

Kick off 2023 by starting the habit of “paying yourself first.”  We suggest you start with setting up a monthly automatic transfer from your checking to savings and treating it like one of your automatic bills. Developing the habit is far more important than the amount you’re saving, so pick a number that you feel comfortable with and can stick to. It’s better to start small with an amount you know you can afford. Make it a long-term goal to save at least three months’ worth of living expenses in an emergency account, and you will be well on your way to having a sound financial foundation.  

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