Where to Keep Your Money

“The wise man saves for the future, but the foolish man spends whatever he gets.”
Proverbs 21:20

Wise people save money. That’s the basic financial principle I have learned from the Bible. As someone who makes a decent income and has some extra money saved, you need to know where to keep your money.

The quick answer is that where you keep your money will depend on what you plan to use it for and when you plan to use it. In this article you’ll learn some quick tips on how to decide where to keep your money depending on what you plan to do with it.

You have money saved for different things but don’t know where the money should be kept in order to maximize the return while also keeping it safe! Wise money managers have multiple places they keep their money depending on their goals and needs. Here are some thoughts on where to keep your money based on what you plan to use the money for. — PIN FOR LATER

Should You Have Multiple Different Bank Accounts?

I typically recommend having different types of accounts for different uses for your money. For example, money that you’ve saved for only emergencies shouldn’t be kept in the same place as the money for your daily living expenses. Your retirement money should not be saved in the same place as the down payment for the new house you plan to buy nex year.

As long as you can keep track of your multiple accounts well, keeping your money separated into different accounts will help you clearly identify what each amount is to be used for.

How Many Different Bank Accounts Should You Have?

At a minimum, 2 accounts is a great starting place; a savings and a checking account. If your parents set up a bank account for you as a young adult then you probably already have those. Great start!

However, as your goals and needs grow over time, it is advantageous to open up a few new types of accounts to help segment your money.

So here are some thoughts as to where to keep your money depending on what you plan to use it for.

Where to Keep Money For Living Expenses

Your monthly living expenses need to be easily accessible since this is the most common thing you will be using your money for. Living expenses include housing, food, transportation, bills, debt, and entertainment.

This money is typically best kept in a checking account.

Where to Keep Your Emergency Fund

Emergency funds are essential for those looking to become excellent money managers. While it’s important that you can readily access the money inside your emergency account in the case that an emergency does happen, I don’t recommend keeping it in a primary savings or checking account.

Emergency funds are best kept in a high interest savings account or money market account where they can be earning a bit more interest than they would in a traditional savings account.

Note: High interest savings accounts are best for high interest rates and low minimum deposits while money market accounts are best for high interest rates, high minimum deposits, and easier access to your money

Where to Keep Money You’ll Need in 5 Years or Less

Are you planning on buying a house in the next few years? Or maybe you are saving for a new car, vacation, or home renovation. If you are planning to make a large purchase within the next 5 years, the best thing is to lock that money away in a place where it cannot lose value.

Don’t go investing this money in hopes of making more in the meantime – yes it is possible to make money. But you can also risk losing it in the event that the market takes a downturn. The short amount of time would not allow it to grow enough after it’s value has gone down.

Instead of taking a risk and investing it, keep this money in a place where it will earn some interest and is also safely protected from market crashes. Some places to consider keeping these kinds of savings are high interest savings accounts, money market accounts, or certificates of deposit (if you absolutely will not touch the money until a specific date).

Where to Keep College Savings

College is expensive and many young adults need to resort to using student loans. While they are very helpful, if they can be avoided that will give a student a head start financially in their careers.

A few places to consider keeping college savings are 529 Plans or educational savings accounts (ESAs). Both of these accounts are specifically designed for educational and college purposes and can come with some great benefits.

No matter when you start saving for college, student loans may be inevitable… If you do plan to use student loans, be sure you or your college student understands what that means once you graduate college. Even though it was slightly explained to me, I still didn’t fully grasp the impact that student loans would have on my life after college.

Where to Keep Long-Term Savings

Did you and your spouse start saving now for your 20th anniversary? Maybe you are saving a little something extra for that dream house you plan to build a decade from now. There are many things you could be saving for that are 5+ years from now so where should you keep that money?

This money might be okay to invest in something that could earn you a bit more interest. Just be sure you understand the risks you are taking when you invest your money in the market rather than keeping it safely tucked away in a savings account. Once you are within the 5 year mark of when you plan to use they money, it may be wise to move it to something safer – like a high interest savings account or money market account.

Something else to consider if you do plan to invest this money is to figure out what fees and taxes may be applicable when you take the money out of the accounts they are invested in. Make sure you factor that into the numbers when you are weighing the pros and cons.

If you plan to invest the money and use it before retirement age, make sure to put it in a traditional brokerage account rather than a retirement account. If you don’t want to risk the money, check out some high interest savings accounts, money market accounts, or CDs.

Where to Keep Retirement Savings

Retirement may sound very far in the future, but trust me, it is important to start saving for it while you are young.

If you are a full time employee with the opportunity to invest in an employer sponsored retirement account, like a 401(k), definitely take advantage of that – especially if your employer offers a match for what you invest.

On top of an employer sponsored retirement account, or as a self-employed individual, you can also have an individual retirement account (IRA). There are also specific options for those who are self employed, since they do not have access to accounts such as 401(k)s.

Where do you keep your money and which accounts do you plan to open next?

Need help understanding your options? Check out my money coaching opportunities to get extra accountability as you become an excellent money manager of the resources God has entrusted you with.