Why Planning for Your Future Requires More Than a Savings Account

The most basic way that people financially prepare for the future involves stashing money away in a savings account. If you are like many others, you may even have an automatic transfer scheduled to deposit money regularly into your savings account so that the balance can grow substantially over time. However, if this is the only step that you are taking to prepare for your financial security in the future, you may want to review your plan. Maximizing Your Retu The return on a typical savings account is minimal. In fact, some savings account returns barely keep pace with inflation. This means that the value of your money is not necessarily increasing over time. It makes sense to keep some money on hand in a savings account, but it also makes sense to make investments that have a greater return. Safe options that have as lightly better yield in most cases include CDs and bonds. Stocks and mutual funds are riskier, but they may have a substantially larger yield. Taking Advantage of Tax Benefits The interest that you earn from a standard savings account is usually taxable income. This holds true for any income that you earn from other types of investments, such as stocks, CDs, bonds and more. However, if you hold the investments in a tax-advantaged account, such as a retirement account, you may enjoy different types of tax benefits that can offset the impact of taxes on the growth of your funds. Understanding Future Financial Needs Unless you stash away a considerable amount of cash in a savings account, there is a good chance that you may not have enough money available to meet your future financial needs. Social Security income is no longer sufficient to meet most retirees’ needs, and many seniors must supplement Social Security income with their own personal funds. You may not want to rely on Social Security income at all because of the uncertainty that is associated with it now. Keep in mind that a Social Security attorney may be available to assist you if you have trouble receiving benefits. It is wise to keep a healthy sum of money available in a savings account for emergencies. Some people keep as much as a year’s worth of expenses or income in their savings account. However, because the return on this type of account is minimal and because your future financial needs may be significant, it makes sense to maximize your return as much as possible by diversifying your investments.