I am currently putting around $1,500/month into savings. I’m starting to realize that this probably isn’t the best thing I could be doing with my money, since my savings account has such a low return on investment.
I would like some tips on where to put my money so that it will give me a good interest rate but that I can pull out at any time. I watch different financial channels and one in particular talks about MooMoo or chime or things like that, but I’m unfamiliar with the tax penalties of these.
I put money into retirement and into vanguard (not much into vanguard) but my understanding is that if I pull money from vanguard, there will be a significant tax penalty. I’m still trying to learn about investing so any advice is appreciated
Tips for where to put extra money
byu/Professional-Love-30 inpersonalfinance
Posted by Professional-Love-30
5 Comments
Start here: https://www.reddit.com/r/personalfinance/wiki/commontopics.
A normal brokerage account has no penalties; but you will pay tax on gains
Buy at 10; sell at 11; pay tax on 1 (assume 15%) = 0.15 tax 0.85 profit
Investments come with risk; especially short durations.
Sticking with a hysa is great for money you realistically need access to “soon”
Otherwise, learn to let go and tuck money away in the stock market for 10+ years at a timr
First of all, what is the plan for this money you’re saving? Is it for an emergency fund? Down payment on a house? Car? Retirement?
The longer the time frame, the higher the risk and higher return you should expect — index funds like mutual funds and ETFs in the stock market. The shorter the time frame, the less risk and lower return — think HYSA, CDs and bonds.
The general guidance is to prioritize an emergency fund worth 6-9 months of expenses and minimum of 15% of income towards retirement.
If this money is for potential emergencies such as critical, time sensitive repairs or potentially even being laid off then the best place is a HYSA. The reason you put it here is because anything else that has potential to grow more also has the potential to shrink and the last thing you want in an emergency is to go take your money out only to find it’s half it’s value. This emergency fund isn’t an investment. It’s a universal insurance policy.
As for investing you will want to prioritize investing into a 401k and roth IRA first. There are rules around them, but with a Roth IRA you can take your contributions out at any point without question and there are exceptions to allow penalty withdraw of the growth for other reasons such as education or medical emergencies.
When you invest for retirement you want to be in it for the long haul anyways so taking money out of them should be a last resort.
If you have ample emergency savings already established, you could reduce future contribution amounts to savings to something smaller (to still mitigate inflation impacts perhaps) and then use that extra cash flow to increase your retirement IRA and/or 401K withhold % to a higher amount (say 15%). If you have significant debt, then also focus on clearing debt to maximize your cash flow.