Managing your finances effectively is crucial to having a stable and successful financial life. Having the right financial accounts not only makes money management easier but will also help you achieve your short-, medium- and long-term financial goals. Here are the 5 financial accounts that every adult in the United States should have and that you should consider if you don’t already have them.
Types of financial accounts every adult should have
1. Checking account
A checking account is a basic bank account that allows for frequent deposits and withdrawals, as well as paying bills and making everyday purchases. We recommend looking for a checking account that offers little to no service fees and has a wide network of free ATMs. Some of the benefits of a checking account include:
- Ease of access: Checking accounts typically offer debit cards and online access for easy transactions.
- Payment management: You can set up automatic payments for recurring invoices to avoid late payments.
2. Savings Account – High Yield Saving
A savings account is a bank account designed to hold money that you don’t need to use regularly, and which earns interest on the balance. The interest earned will depend on the rate offered by the bank where you have your savings account.
In this way, a High Yield Savings account is a savings account in which you can make your money grow since it pays more interest. Consider having savings accounts with competitive interest rates and low minimum balance requirements, this way you can get more out of your savings. Some of the benefits of a savings account are:
- Interest: Money in a savings account earns interest, which helps your money grow over time.
- Security: Savings accounts are FDIC insured up to $250,000, providing security for your funds.
3. 401(k) or 403(b) account
A 401(k) (for private sector employees) or a 403(b) (for public sector employees and nonprofit organizations) is an employer-sponsored retirement plan that allows pre-tax contributions. Take full advantage of employer-matching contributions and review the investment options available within the plan. Some of the benefits of a 401(k) or 403(b) account include:
- Pre-tax contributions: Contributions are made with pre-tax income, reducing your current taxable income.
- Employer contributions: Many employers offer matching contributions, increasing your savings at no additional cost to you.
4. Individual Retirement Account (IRA)
An Individual Retirement Account (IRA) is a tax-advantaged investment account that saves for retirement. Make sure you understand the differences between a traditional IRA and a Roth IRA to choose the one that best fits your needs. The benefits of an Individual Retirement Account (IRA) include:
- Tax advantages: Contributions to a traditional IRA may be tax-deductible, while Roth IRAs allow for tax-free withdrawals in retirement.
- Long-Term Growth: These accounts are designed for long-term investments, providing potential capital growth.
5. Investment account or Brokerage account
An investment account is a non-retirement account that allows you to invest in stocks, bonds, mutual funds, and other assets. Diversify your investments to mitigate risk and consult with a financial advisor if necessary. Some of the benefits of an investment account include:
- Capital growth: Investments can offer higher returns than traditional savings accounts.
- Flexibility: You can withdraw funds whenever you need them, although you should take into account the tax implications.
Finally, don’t forget that responsible management of each of these accounts, as well as your finances, will help you achieve your financial goals. Make sure to assess your personal needs and adjust your accounts accordingly.
