Adulting can be difficult when it comes to money. Millennials are trying to find the balance between saving money and vacationing in Dubai. The older I become the more I realize there is a time and place for anything. The key to accomplishing a balance is having the right accounts and system set up. That is what brought me to write on this topic covering types of accounts that millennial grown ups need in their life. Simply put, when your finances are taken care of the rest of the money can be spent on wants guilt free. Keep reading to discover different accounts you are missing to accomplish a sound financial structure.
Free Checking & Saving
Purpose: Starting off simple with the basics. Every millennial need at least a checking and saving account. These accounts should be used for paying bills, direct deposits and saving for wants or to serve as a buffer before using emergency money. Don’t feel the need to stick with large banks as sometimes a federal credit union in the area can be a much better fit. If you find that your checking account has more than 3 months of expenses in it after regular bills, it is time to upgrade and do more with the surplus money.
I also recommend having a personal checking account if you are married or sharing finances with a significant other. My wife and I have a joint account used for bills and saving. We also have our own separate accounts for personal spending on whatever we want. Each paycheck 10% is directly deposited to the personal account and it helps avoid asking each other to buy shoes or new Batman action figures.
- Paying for a checking or saving account is for suckers!
- Avoid having more than 3 months of expenses in the account not earning interest
- Check around banks for promotions to get some free cash
Emergency Fund Account
Purpose: My favorite type of account is the emergency fund or rainy day fund. The sole purpose is to use this account only for an EMERGENCY! Use the money for when a car breaks down, unexpected hospital visit or any other emergency that disrupts your daily life. Having the knowledge of an account for emergencies is straight peace in the membrane.
My rule of thumb is to think back in the past two years and count how many emergencies have occurred. If you count more than four emergencies in the past two years, then use a money market account as it will give more interest than a traditional saving account and still liquid. If you have less than four emergencies it means you don’t need the money as liquid. Check out my list of accounts to store an emergency fund and make the money work harder for you. I have $3,500 in a emergency fund and haven’t had an emergency since we started the account in 2014. Decide for yourself if you need the money in its most liquid form.
- Use accounts that are liquid
- Store at least 3 months of expenses
- Only touch for an EMERGENCY
- Bonus Rule *Touch the money for only an Emergency!!!* <— Repeated on purpose for those who didn’t get it the 1st time.
Purpose: The account serves as a holding bucket of cash for investing in the market or the next personal investment. If you prefer to invest in the market, then this account can be held with a reputable and trust worthy brokerage account. Accounts can be found usually as a 401(k), IRA, Roth IRA or a portfolio. Remember to perform periodic check-ins to analyze gains or losses. My old Roth IRA, for two years, made gains of roughly $200 and the fault is my own. By doing check ins you can analyze your returns and whether it’s time to change strategies. View the top seven mistakes millennials make when it comes to investing for more education.
Another purpose for this account is for personal investments for my readers who like to grab the bull by the horns and borderline have control issues. The investment can be a bucket for real estate, entrepreneurship or any other money making ideas. All investment opportunities should be thoroughly thought out and planned. Opportunities should have the ROI figured as well for profitability.
- Start investing early when time is on your side
- Diversify the portfolio to protect against a market crash
- Take emotion out of personal investment opportunities when figuring the ROI
HSA (Health Saving Account)
Purpose: Most millennials aren’t aware about HSA, I’m sure because we rarely talk to HR at the job. Basically, this account is too hold money to pay for any kind of medically-related expense, large or small. Like a saving account except the money can only be used at pharmacies, doctor offices, hospitals and other approved medical facilities. Provided with the accounts are debit cards that can be used to pay for medical purposes.
To be eligible you will need to be enrolled in a plan called a High Deductible Health Plan. The plans will have a high deductible but monthly premiums are typically much less than plans with a lower deductible. This account is ideal for people who want to save for and pay for healthcare expenses.
- Talk to a HR rep for more information
- Save what you won’t miss
- Use the money. Your health matters!
Jar of Change
Purpose – Everyone has that one holding container that captures loose change and bills. This account’s purpose is whatever you deem to it. It will help keep money from disappearing to your pockets and help save for a vacation, debt, home projects or anything else you assign. Surplus money after the month can also be used for this type of account.
Money can be kept inside an account if you are the fancy type or don’t trust house mates. Though any jar will work for the occasion. I still use a large vase that I’m sure once upon a time had flowers in it. There is no exact amount to have in this besides whatever loose change and bills you have at the end of the month. The money will build up over time slowly but surely.
- Have a plan for the money
- No dipping until the plan is accomplished
- Contribute money that won’t be missed (small change or loose bills)
How many accounts did you already have? Whether you have none or just a few, it’s imperative to work towards those most needed. Make a priority list of where you are lacking and set SMART goals to accomplish.
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