Savings your way
Choosing the right plan for your money goals
March 16, 2022 4 min read
So you want to start saving. That’s great! You’re already on the right track. But where to begin? And what kind of account to open? When it comes to making a savings plan, one size doesn’t necessarily fit all. You’re a unique individual with unique savings goals. You deserve a personalized savings plan designed just for you.
Before you choose between the different types of savings accounts that are available, one of the keys to saving money is to define and prioritize your savings goals. Maybe you want to stash away some cash for a vacation. Or maybe you’re ready to get serious about saving for retirement. Whatever your goals, once you know exactly what you’re aiming for, it’s easier to choose the right plan to help you succeed.
Define your savings goals
Putting money away for the future can be a good idea. But choosing the best way to save money can be tricky. Before you open a savings account, money market account or IRA, it helps to know exactly what you’re planning to do with the money you save.
Start by making a list. Are you putting aside money to use as a financial cushion for unexpected expenses? Maybe you’re saving up for a big purchase like a new computer or car. Once you’ve outlined your goals, you can organize them in groups.
- Emergency savings help you cover big, unforeseen costs like major car or home repairs. The future is impossible to predict, and sometimes challenging life events do happen. When you’ve got money in an emergency fund, bumps in the road are easier to weather. Even when everything is going smoothly in your life, just knowing you’ve got money for emergencies can help you feel more secure and confident. When it comes to how much to have on hand, it’s up to you and your comfort level, but many financial advisors suggest saving enough money to cover expenses for 3 to 6 months or longer.1
- Short-term savings can help you achieve more immediate, specific goals. Maybe you’ve been dreaming of a trip to Italy. Perhaps your kitchen is in need of a major upgrade. Or maybe you just want to set a little more money aside for holiday gifts this year. Think of your short-term savings as a place to put money away for these types of big-ticket items that don’t fit into your regular monthly budget.
- Medium and long-term savings include retirement savings, college savings and savings toward a down payment on a house. When you picture your life 20, 30 or even 40 years from now, what do you see? Do you want to live in a yellow house with a large oak tree? Are you hoping to spend your retirement traveling around the world? Savings geared toward making these dreams a reality belong here.
Find an account to match your goals
After you’ve defined and prioritized your savings goals, you’ll probably be pretty excited to start making them a reality. But where do you start? Once you understand the benefits and restrictions of each type of savings account, the decision can be easier.
- For emergency funds, the classic savings account can be a great place to save. In a savings account, your money still earns interest, but it’s also easily accessible right when you need it.
- For short-term savings goals, money market accounts can be a good option. They are often a little more accessible than CDs and work better for short-term goals because they typically offer options to withdrawal.2
- For medium-term savings goals, you might want to consider opening a CD. Keep in mind that CDs usually require you to set your money aside for a period of time of your choosing in exchange for a higher interest rate.2
- For long-term goals like retirement, 401(k)s and IRAs can be good options.3 These types of accounts are designed to help maximize growth over long periods of time. Access to your money in these sorts of accounts is limited, which makes them ideal for working toward long-term goals.
Starting a new savings plan is exciting because it means you are investing in the future you want for yourself. When you know exactly what your goals are and how to prioritize them, it’s easier to make smart choices about the kinds of accounts to open and where to put your money. Remember, you don’t have to settle. Instead, you can create a personalized savings strategy that helps you meet your unique money goals.