The month Johnny and I paid off our student loans was just like any other month. But the next month? It was unlike any other. For the first time in our marriage, we could focus on saving, instead of paying off debt. Saving! Just what we’d always wanted. But after several months of saving, we started to ask ourselves, “But what are we saving for? And where we should put this extra money stuff?” Our savings was growing, but without any real plan. We sorta knew what we wanted to save for, but we weren’t always sure how. Here’s what we knew we wanted:
- College savings for our kids
I think most people know what they want to save for, but they may struggle with the how. And a lot of the how depends on the what. Since we first started saving a few years ago, Johnny and I have become more purposeful in where our money goes. So here’s a quick and dirty guide for where you can put your extra dollars as they come rolling in.
Savings Accounts and Money Market Accounts
A lot of checking accounts out there are pretty much on par with putting your money under your mattress. In other words, your money ain’t going anywhere (unless a frenemy finds out you’re keeping it under your mattress). Savings accounts and money market accounts offer a little better return for parking your money in them. But with the better interest rates comes some consequences: you can only withdraw six times a month, per federal law. In other words, don’t use these accounts like a checking account — which is probably a good deterrent to keep your hands off your savings anyway.
- Risk: None
- Opportunity for Return: Low
- Accessibility: Medium
CD is short for compact discs, which are these really cool shiny things… kidding. CDs are kind of similar to savings accounts, in that your money is pretty safe. But unlike savings accounts, you have to keep your money in a CD for a specified amount of time. It could be a few months or up to 5 years. But because you’ve agreed not to withdraw your money until it matures, you can get a higher interest rate than with a typical savings account. And if you try to withdraw before the agreed upon time, you’ll face some stiff penalties.
- Risk: None
- Return: Medium
- Accessibility: Low
However you choose to save for retirement (4o1ks, IRAs, or what have you), you gotta be ready to say goodbye to those dollars for a very long time. But you can reassure yourself with the likelihood that when you meet that money again, it will have transformed from a mere calf to a stallion ready to ride you off to retirement paradise. (Johnny just told me that might be the weirdest line I’ve ever written. Thank you, Johnny.) You don’t just put retirement savings in for the long haul — it’s in for the really, really, super, duper, very, mostest, longest haul.
- Risk: Low-Medium
- Return: High
- Accessibility: Low (more accessible as you become less accessible… sad, really)
Other Investment Vehicles
Whether it’s the stock market, mutual funds, or some other investment vehicle, there’s one important rule: invest for the long haul. Markets go through peaks and valleys over the short haul, but over many years, they tend to grow. And the stock market is equally unpredictable and always presents a risk. If you put your savings in some mutual funds in 2005, you’d be kicking yourself if you needed that money a few years later. Wait a few more years and you’d be back on the gravy train. If you’re saving for the short-term (five years or less), this probably isn’t a good option.
- Risk: High
- Return: High (Potential)
- Accessibility: Medium
Where do you currently have your savings, and what are you saving for? Johnny and I are currently taking advantage of savings accounts, money market accounts, 403bs, Roth IRAs, and stocks. And we will neither confirm nor deny whether we take advantage of the mattress investment vehicle. If our frenemies ask, just tell them no.