Alright, we’ve already tackled the tough stuff—creating a budget, figuring out how and when to pay your bills like the responsible adult you are, and maybe even discovering a little hidden treasure in your bank account (hello, extra dollar or two!). So, now that you’ve got some extra cash, what should you do with it?
Well, before you head to the bar or pull the trigger on that Amazon purchase you’ve been eyeing (even though you know deep down you don’t really need it), let’s talk about your options. Why not splurge, you ask? Well, I’ve got a couple of reasons for you to think twice.
First off, if you’re reading my posts, chances are you’re serious about achieving financial freedom. You want to retire when you choose—not when you run out of time. If that’s the case, then it’s time to stop throwing your money away on short-term indulgences and start thinking long-term. And I’m not just talking about getting out of debt—I’m talking about growing your money. So, let’s talk savings.
Now, I know I’ve mentioned savings a few times, but here’s the big advice that’s bound to make you scratch your head: You can’t save yourself to wealth. Yep, I said it. You can’t expect to build wealth with a traditional savings account. While having a basic savings account for emergencies, a future home, or a travel fund is a smart move, it’s not going to grow your money in any meaningful way.
If you’re looking to actually grow your wealth, it’s time to think about a High Yield Savings Account (HYSA). These accounts offer a better return on your money compared to a regular savings account. Ask your bank if they offer them, and if they do, find out what the APR (interest rate) is. If it’s 3% or higher, congratulations—you’re in the money-making game! That extra interest will be working for you, slowly but surely, as you put money in over time.
Now, how much should you contribute? If you can, aim to put 3% to 5% of your paycheck into your HYSA after paying your bills and covering your living expenses. I don’t want you to live like a monk just to save—remember, you still deserve a good meal or a night out. But if 3%-5% is too much for you to start with, no worries. Begin with something manageable—anywhere from $20 to $100 per pay period, depending on what you can comfortably set aside. The goal is to consistently invest in your financial future, not to be penny-pinching to the point where you can’t enjoy life today.
Here’s the biggie: once that money goes into your HYSA, do not touch it. This isn’t your “let’s treat myself” fund. This is your “I’m building a better financial life” fund. Keep that money growing over time, and when you’re ready for retirement, you’ll have a solid cushion to fall back on.
And then there’s the emergency fund. Yes, this is the more boring, non-wealth-building account—but trust me, it’s necessary. This is where you’ll stash money for things like car repairs, unexpected medical bills, or, god forbid, a job loss. A good rule of thumb is to build this emergency fund up to 3-6 months’ worth of living expenses. I aim for a year, because I’m an overthinker and would rather be over-prepared than caught off guard. The key here is that you don’t want to dip into your HYSA or rack up credit card debt for emergencies. So, start building this fund as soon as you can, and make sure it’s there when life throws you a curveball.
And as for investing—well, that’s a whole other ball game, and I’ll be diving into that in my next post. Stay tuned, because we’re just getting started on this financial freedom journey!
So, to wrap things up: Don’t blow your extra cash on temporary thrills. Instead, put it into savings and investments that will actually work for you in the long run. Your future self will thank you.
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