Knowing when to save and when to invest isn’t a clear choice, there are difficulties doing both. Sometimes you have to take a risk in order to maximize either task, but if you combine both, you may not have to take any risks. Below we will describe Saving vs. Investing: When to Choose and How to Do It.
Normally, people will save 3 to 6 months worth of living expenses, but that alone is difficult when there are so many expenses to take into account. Many companies are now offering to help you with both, but how do you know which ones to choose? In the post below, we’ll give you some suggestions on how to balance saving and investing.
Table of Contents
When To Save
Many financial advisers will tell you that the most important thing to have is a financial cushion in case of emergencies. Saving is a smart move if:
- You don’t yet have emergency savings. Professionals will recommend you set aside at least one month worth of living expenses before trying to invest. Saving as little as $500 will help give you a cushion in case you have to make any vehicle repairs or see doctors.
- You need the cash within five years. If you already have emergency savings and want to look to put a down payment on a house or an annual car insurance premium, then keep those types of short term savings in your savings account. Those returns are guaranteed.
How To Pick A Good Savings Account
Most financial institutions offer some form of a savings account, but if you want the best type make sure they have these attributes:
- FDIC Insurance: This type of insurance protects you from any bank failure, so your money is covered up to $250,000 per depositor in both the bank and ownership category. Although most banks have this insurance, it doesn’t hurt to make sure your new bank offers this.
- High Annual Percentage Yield: Many banks actually pay an extremely low rate on deposits, such as 0.01%. However, interest rates are rising, so you can get more for the money you put in.
- No Monthly Fee: Some banks waive their monthly fees if you have a large enough of a balance or meet certain criteria. Others won’t charge a monthly fee at all, so find a bank that suits you.
American Express® High Yield Savings Account - You earn a competitive interest rate along with no minimum deposits or monthly fees. Amex High Yield Savings account has been my favorite Hub account for the past 7 years. Using this account to Pull/Push your money is absolutely necessary when you have many accounts. Here's why:
*No dollar limitations for ACH transfers - When you find a top bank rate account, you don't want to be limited to just $5K or $10K transfers. Amex Savings will let you transfers as much as you want whether you are pulling or pushing money from and to an external bank account.
*1 to 2 business days ACH transfers speed - With top-notch user interface, you get your money to another external account or pull money from another bank account within a day or two.
*No loss of interest during transfers - On the day you initiate your transaction on the high yield savings account website, the funds will be reflected in your Current Balance and begin earning interest.
Some other features from American Express® High Yield Savings account include Free Wire Transfers, 3 maximum linked accounts, and maximum 6 ACH withdrawals per month.
Savings account offers are frequently updated. Find the best nationwide Savings/Money Market rates here, and the best Savings account bonuses here. The Axos Bank and CIT Bank accounts offer great rates available nationwide which I recommend.
|Discover Bank Online Savings||$200 Bonus + 1.10% APY||Review|
|Aspiration||$150 Bonus + 1.00% APY||Review|
|CIT Bank Money Market||Amazon Prime($139 value) + 1.00% APY||Review|
|Axos Business Savings||$200 Bonus + 0.20% APY||Review|
|UFB Money Market Account||1.66% APY||Review|
|UFB Savings||1.66% APY||Review|
|Quontic Bank High Yield Savings||1.58% APY||Review|
|Quontic Bank Money Market||1.50% APY||Review|
|CIT Bank Savings Connect||Up to 1.35% APY||Review|
|American Express® High Yield Savings account||1.00% APY as of 6/29/22||Review|
|Axos Bank High Yield Savings||Up to 0.61% APY||Review|
When To Invest
Generally, people will invest money for the long term, such as retirement, and this happens during the same time as saving. Sometimes investing stops becoming the priority with one exception:
- You’re eligible for a 401(k) match. If your employer offers a 401(k) or some other type of workplace retirement plan, there’s a chance it’ll match a percentage of your salary (i.e. 4% or 6% of your salary). This is kind of like free money, but the only way to take advantage of it is to sign up and contribute to the account. Unless someone can’t pay their own bills, then they should save enough to get the full match.
You can actually start saving for your 401(k) while starting an emergency fund. Whatever amount you decide to save a month, it’s best if you can split that amount 50-50 between your 401(k) and savings accounts.
Consider investing more money if:
- You have a topped-up emergency fund or you’re making good progress. People should generally have their emergency fund fully funded within the next two to three years or making excellent progress before making any efforts in investing. Three to six months of living expenses is only a recommendation but if you’re able to save more, then do it.
- You’ve paid off high-interest debt. Student loans and mortgages normally have low interest rates, so it’s okay to pay the minimum payments in most situations. However, the high-interest debts, such as credit card balances, should be your priority and should be paid off as soon as possible before trying to invest.
- You have long-term goals that will require a lot of cash. If you have certain expenses, such as retirement or a college fund for younger kids, that won’t come for at least five years, then you’re in the clear to invest.
How To Pick A Good Brokerage Account
First and foremost, figure out how much you want to be hands on regarding your investing. For beginners, they should use robo-advisors that use algorithms to manage your investments based on your risk tolerance, goals and other factors. This means you won’t pay very much to vary your investments, and the robo-advisors will help you keep the right mix of investments.
|Ally Invest Self-Directed Trading||Up to $3,000 Cash & free trades||Review|
|J.P. Morgan Self-Directed Investing||Up to $625 Cash||Review|
|Axos Self Directed Trading||$150 Cash||Review|
|Axos Managed Portfolio||$150 Cash||Review|
|TradeStation||Up to $5,000 Cash & free trades||Review|
|WeBull||6 Free Stocks & free trades||Review|
|SoFi Invest||$25 Bonus and free trades||Review|
How Much Should I Save Vs. Invest?
As a general rule of thumb, you should always save money before you even try to invest it. Saving money can act as your foundation for any of your future endeavors. Your savings will be your capital as you embark on your journey towards investing. Here are the two types of savings programs you should follow:
- Your savings should be sufficient to cover all of your personal expenses, such as your mortgage, loan payments, insurance costs, utility bills, food, and clothing expenses for at least six months. This is a great rule because if you lose your job, you are covered for six months, giving you enough time to find another.
- If you any any specific goal that requires a large amount of money in five years or less should be put towards savings and not investments.
Once these two things are set, you can start worrying about health insurance. The only reason you would put money into a 401(k) plan is if your employer matches it. You will get a huge tax break for putting money into your retirement account, and your job is essentially giving you free money towards your future.
Saving and investing doesn’t have to be confusing with the tips we’ve written above. Learn how to manage your saving to make sure you have enough for you future as well as start investing to make money for your present. Wondering which bank you should use? For a variety of options, see our list of the Best Brokerage Bonuses and Best Bank Rates.