“How did you go bankrupt? Bill asked. “Two ways”, Mike said. “Gradually and then suddenly.”
– E. Hemingway, The Sun Also Rises (1926)
Once we make some money, how do we keep it?
There are many articles written about how to make money, some are shady and some are legit. But there are few articles written about how to keep money once it’s made.
Perhaps because, as a general rule, we spend a lot of time thinking about making money, and very little time thinking about not losing money.
So here are a few thoughts on how to keep money once you make money…
Have a Plan
Whether you are just starting out or have already built a “nest egg”, the punchline is straightforward: Live within your means.
Easy to say, hard to do.
As your career improves and your income increases, it is tempting to raise your level of personal spending.
I have friends in New York City who are very successful with seven-figure incomes, but they spend every penny.
Good times are not guaranteed to continue forever.
Spend time thinking about your short and long-term goals, and set aside money for each of these goals.
As your income increases over time, make a conscious effort to use the additional money to meet the goals you have established. And, until you do, try to hold off on upgrading your closet or trading in the car for a newer model.
Always know how you are spending your money. If you know where your money is going it makes it easier to make necessary trade-offs. It also makes it easier to see that your short and long-term savings goals are probably more important to you than some of the other expenditures.
Invest, Don’t Speculate
Too much of social media is caught up in get-rich-quick schemes.
Most of them are just that, schemes.
Yes, that story on IG or YouTube about that person who made a huge amount of money in a week or two is exciting. And it might even be true. But there is nothing about that that involves investing.
That is pure speculation.
Investing is unemotional.
It is about having a plan and having the conviction to execute the plan. Emotion and greed cloud judgment, so don’t be emotional.
Any solid investment plan includes diversification. With so much information being thrown at us every day it’s easy to be lured into making one or two big bets. The stories sound so convincing!
Putting the majority of our money into one or two big bets is not investing, it’s speculation. As long as we know the difference we can make the right decision. Unless you are a professional investor with many years of experience, diversification should be an important part of your plan. Once you have a plan, have the patience to stick with it. Get rich quick schemes almost always end badly.
We’ve seen too many people confuse investing in these obvious trends with market skill or investing expertise.
The markets are not likely to repeat 2020.
So, in very simple terms, know how to keep money by living within your means, having a plan that includes a budget and your short-term and long-term savings goals, and investing in those goals utilizing a diversified portfolio appropriate to the timeline of your goals.
Learning how to separate money into different bank accounts associated with your specific goals will help you stay financially stable and disciplined.
When you set up multiple accounts, it makes saving for specific short-term and long-term goals simpler. Otherwise, as the saying goes, you will “rob Peter to pay Paul.” With the best of intentions, you will fail to save for short-term and long-term goals. Marygold & Co. can help you learn how to separate money in a bank account, into a few accounts.
What Accounts Should You Set up?
The number of accounts you should establish depends only on your individual goals. By separating your goals and prioritizing them, you can view your direct progress towards each. For example, establishing an independent account for vacations allows you to track your progress towards that goal protecting and prioritizing your progress against your other goals.
Everyday Expenses Account
An everyday expenses account allows you to have consistent access to the cash you need for such expenses as rent or mortgage payments, utilities, clothing, transportation, and loan payments.
To set up this account, you need a budget. With an accurate budget, you know how much of your earnings must remain in this account. You need an accurate determination of the weekly, monthly, and yearly expenses you will have to pay. You can set up categories in your budget for fixed and variable expenses.
Fixed expenses are costs you know are coming at set times. You can predict exactly or nearly how much each will be. Fixed expenses might include:
Fixed but not monthly expenses you must budget for include things like:
Property taxes (quarterly, semiannually, or annually)
Annual home insurance
Vehicle insurance (quarterly, semiannually, or annually)
Annual check-up vet bills
Regular vehicle maintenance
Variable expenses may not be the same amount each month and/or they might not occur monthly but you know they are coming and you need to budget for them. These might include:
Personal care items
Public transportation costs
Clothing and shoes
Work lunches and snacks
Luxury items like cigarettes or alcohol
Hobbies, sports, and recreation
Magazines and/or newspapers and /or books
Once you have a handle on what expenses you need to cover, you can calculate how much money you can set aside in savings.
A single savings account is fine if you have one goal: to save for future acquisitions such as a vacation or your first home. However, if you have several goals like a new car, home renovations, education for your children, and/or retirement, you’re going to want to have separate accounts for these savings goals.
Emergency Savings Account
Financial advisors suggest you set up an emergency fund or “rainy day” account. We all know unexpected events occur. Your car breaks down. You get caught in the company downsizing. You have an injury that puts you out of work with medical expenses not covered by insurance. A good rule: This account should have enough to cover fixed monthly expenses for between three and six months.
Once you have started earning money, one of the savings accounts you open should be designated for retirement savings. It is never too early to start. Financial experts estimate that individuals should include enough in their retirement savings so they have about $45,000 a year or $61,000 a couple at their disposal.
Setting aside a few dollars each paycheck for retirement in high-yield long-term investments will ensure you aren’t one of the 64% of Americans whom writer John Maudlin notes cannot afford to retire.
Why separate savings from expense accounts? When money isn’t needed to cover monthly expenses it can enjoy higher interest rates available for accounts intended for long-term goals.
How to Separate Money in a Bank Account
The best way to keep your finances organized is to first clearly identify your expenses and your goals. Use a financial budgeting tool that allows you to separate your long and short-term goals so you can invest in these goals accordingly.
Start with a no-fee spending account for expenses. If you have a budget, you know how much of your earnings need to stay in this account.
Then establish interest-earning savings accounts earmarked for your specific short and medium-term savings goals. Whether it’s new clothes, a ski pass, snow tires, or a vacation, set each goal with its own amount and date.
Next, if your intention is to save for long-term goals like retirement or a down payment on a house, consult a financial advisor about investment options that may provide greater returns towards your longer-term goals. Also, set a plan to de-risk these investments into cash options as you get closer to your predetermined goals.
How Can Apps Help?
Thanks to rapidly growing technology, apps have become handy tools for keeping track of various accounts for both businesses and individuals.
Using handheld devices and smartphones, you can check balances on your accounts and make changes moving funds from one account to another.
In recent years, financial institutions like Marygold & Co. have made free banking service apps available to their clients because it is good for customer relations to do so. The number of American customers with smartphones has grown to over three billion. Customers using mobile banking apps also progressed at a similar rate. Thus, banks need to invest in mobile apps that enhance their clients’ banking ease.
How Can Marygold & Co. Help?
Marygold & Co.’s financial services app offers several tools to help keep their clients organized and in control of their individual financial goals. One of the key features Marygold & Co. offers is the Money Pool Savings Account which allows valued clients to separate and categorize their money all within one account. It is as simple as creating a goal, setting a timeline and amount then allocating funds from your paycheck into each Money Pool.
If you have a short-term goal like buying a bike, you can create a Money Pool.
If you have a long-term goal like buying a house, you can create a Money Pool.
Each financial goal can have a separate Money Pool making it easier to track the progress as well as differentiate between each individual goal. Seeing the accounts in one place not only alleviates the stress of keeping up with multiple bank accounts, but it also allows for clients to keep their financial goals in mind.
With Money Pools, Marygold & Co. clients can more effectively reach their long-term and short-term savings goals. It’ll be a simpler process on how to separate money in a bank account or different Money Pools.
For more information on Marygold & Co. Money Pool savings services or mobile banking app features, join our waitlist.
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**Marygold & Co. is a financial technology company and not a bank. Deposits insured by the FDIC, up to the allowable limit by our issuing and deposit bank partner(s).
**Early access to direct deposit funds depends on the timing of the submission of the payment file from the payer. We generally make these funds available on the day the payment file is received, which may be up to 2 days earlier than the scheduled payment date.