Happy 2025! Have you set any New Year’s resolutions yet?
If your goal for the new year is to become financially fit, then it’s time to start saving your money and stop spending it.
Instead of heading out to your daily coffee run, how about you set aside that money and make it work for you.
Here are a few ways to accumulate cash and build value.
Open a savings account and create an emergency fund
The easiest way to accumulate cash is simply by opening a savings account and start depositing money on a regular basis. This should be your emergency funds account.
However, don’t just open a savings account anywhere. Look for a high yield savings account. If you seek a HYSA, you might be able to find one that pays you about 4% interest. Otherwise, you might end up with an account that pays you less than 1%.
Ideally, you should save 3 to 6 months worth of your income and should only use the funds in case of an emergency.
Open a Certificate of Deposit
You can also go to your financial institution and open a certificate of deposit.
In a certificate of deposit, you deposit a sum of money and it sits in the account for a set term such as 6 months or a year. With a CD, you may receive a higher interest rate than a savings account but you will not have access to your money before the term ends, without paying a penalty.
Additionally, it is important to note that funds in a CD and even a savings account is taxable income… meaning you will pay taxes on interest gained.
You can invest your money in the stock market
Yes you can invest money in the stock market in hopes of earning higher gains. But before you do, where do you invest and what is your risk tolerance?
If you invest in the stock market, you can potentially gain greater returns but you also run the risk of losing money when the market doesn’t perform well. And if you do experience a loss, it takes time to recoup your money.
If you are savy with the stock market, this may be an option to invest and realize gains higher than interest earned from a savings or certificate of deposit account. However, keep in mind that this is also taxable when you sell stock and receive gains.
You can invest in an indexed account
What is an indexed account, you might be asking yourself?
When you deposit funds in an indexed account, your money is not invested directly in the stock market. Rather, the money you invest mirrors an index such as the S&P 500. Additionally, indexed accounts typically come with floor rates. So when the market goes down, the floor rate prevents you from loosing money.
So if your risk tolerance level is conservative and you typically save money in the bank but want higher returns, then this is an alternative to earn higher rates without the risk of losing any money.
Plus these accounts have a tax advantage meaning you do not pay taxes on money you take out, thanks to IRS section 7702. Also, the catch is that these accounts come with cash value life insurance and you must apply and be approved.
Decision time
To become financially fit in the new year, build an emergency fund, open a high yield savings account, and make it a priority to deposit funds on a monthly basis.
If you are savy with the market, open a brokerage account and start purchasing shares.
If you want higher earnings than a bank account but without experiencing losses when the stock market is down, then an indexed account may be the option for you.
Either way, it’s a brand new year and it’s time to make your money work for you. And why not reduce your taxes and take advantage of IRS section 7702.
To learn more, contact Financial Planning With V and schedule an appointment.