It feels good to save money, to see those numbers climbing higher and higher in your savings account without necessarily being earmarked for anything in particular.
But parking your money in a traditional savings account isn’t a very effective way to build wealth or contribute to a healthy financial future. Instead, experts recommend you consider one or more of these 8 financial moves each time you save an additional $500.
Put the First $500 Toward an Emergency Fund
“If it’s the first $500 you’ve ever saved, you should put it into a checking or savings account and keep doing that until you’ve saved enough for an emergency fund of six months living expenses,” said Joe Pelusi, a financial advisor with Green Investment Strategies.
An ideal savings account for an emergency fund should be one that allows you easy access to your money and pays a generous interest rate. You want this fund to grow — safely — and be there for you when you need it.
Open a High-Interest Savings Account
You work hard for each $500. So why not put it to work for you? If you look around, you can find high-yield savings accounts that pay interest rates of 5% or more. For example, Milli Bank is a mobile bank that offers Annual Percentage Yield (APY) as of December 5, 2023, charges no account fees, has no required minimum balance, and is FDIC Insured.
An added bonus? Milli Bank’s app features clever tools designed to help you save even more money. You can set spending targets and track your spending in real time, giving you more control over your monthly budget.
You can also create multiple savings “Jars” within your account so you can separate funds for various savings goals. Perhaps you want to set one Jar aside as your emergency fund, then create more for other purposes, such as an upcoming vacation or a future purchase you’re saving up to make.
Adopt a Pay/Invest/Borrow Strategy
Noah Gomez, a financial consultant and founder at Thick Credit, recommended a pay/invest/borrow strategy.
“With $500 in savings, you can make an additional payment on outstanding debt (if any), invest a portion in stocks or your retirement fund, and place the remaining portion in a certificate of deposit (CD) that you can use as collateral to quickly take out a low-rate emergency loan.”
Pay Down High-Interest Debt
If you have any high-interest debt, such as credit card balances, it is wise to use the extra $500 to reduce or eliminate this debt, according to Douglas Goldstein, CFP(r), GFP(r) Founder of Profile Investment Services, Ltd.
“This will save you money on interest payments in the long run.”
Contribute to Retirement Accounts
It’s also never too early to save for retirement. Goldstein suggested that if you haven’t already done so, “consider opening or increasing contributions to retirement accounts, such as an employer-sponsored 401(k) or an Individual Retirement Account (IRA). Redirecting the extra $500 towards retirement savings can have a significant impact over time.”
Another good use of $500 is to use it to review and updated your insurance policies, said Alec Kellzi, a CPA at IRS Extension Online.
“Ensure you have adequate coverage for health, auto, home, and life insurance. You may discover opportunities to optimize your coverage, reduce premiums, or add policies that better protect you and your family from unexpected financial setbacks.”
Start a Side Business
Extra money can also come in handy if you’ve been considering entrepreneurship, Kellzi said. You might want to allocate a portion of each $500 increment to kickstart a side business or invest in an existing one, Kellzi suggested.
“Starting a business can diversify your income sources and potentially lead to financial independence. Be sure to research and plan your venture thoroughly to increase the likelihood of success.”
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