Charles Dickens once wrote, ““Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” Not much has changed since his day. The simple goal of all financial efforts is to spend less than we earn. Too many of us fall just a tiny bit into debt–and as that debt compounds, so does the stress.
Luckily, there are ways to increase income by putting your savings to work. With that extra money, you can pay down debt and achieve the happiness Dickens promises. The bank you already use likely has savings vehicles which can grow your money without much effort from you. You don’t need to dive into the stock market–just check out these options to earn extra money and manage your debt.
A checking account is important because it not only gives you access to your money, but it gives you an automatic way to cash and deposit checks. Cashing checks can be prohibitively expensive for people who don’t have a bank account. Some places will even make you pay 1-2% of the amount of the check in order to cash it. With a checking account, you can set up direct deposit for your paychecks, removing the need to go to the bank at all
You can also use a checking account to easily pay your bills. All you need to do is link your checking account to the bills that you need to pay. The money can be automatically drawn from your account. This saves you the time that it takes to pay the bills, and it also protects your credit score because you won’t forget to pay bills.
You might not even need to pay any fees for a checking account if you keep enough money in it. You can open a checking account with a deposit as low as $25-50. In addition to the convenience of the account, you’ll also get access to a debit card and tools to help track your spending.
Savings accounts give you an easy way to access your money whenever you need it. You can even link it to your checking account to make sure that you are not at risk of incurring overdraft fees. When you open a savings account, you have multiple ways to get your money, ranging from ATMs to online access.
While the rate is not high, savings accounts will pay you some interest on your money. Some savings accounts will pay you very little, but there are also high-yield options that have better rates. However, those restrict some access to your money.
Since savings accounts are easy to access, you don’t have to sell off assets to pay for unexpected expenses. Savings accounts are a great place to keep your emergency fund along with any other money that you think you may need on short notice. However, there is generally a limit on the number of withdrawals you are allowed to make in a month.
Many people will start with just a small savings account early in life. This helps encourage sound financial habits. Over time, these accounts will build greater savings on interest with consistent deposits. Other people may open a savings account if they are expecting a larger check and need somewhere to hold the money while they decide what to do with it. Both of these scenarios are great reasons to get a savings account.
Money Market Accounts
A money market account will give you some benefits of a checking or savings account along with a slightly higher rate of interest. Depending on the account, you may be able to write checks or use a debit card for up to six transactions a month. However, these accounts aren’t for small amounts of money. They usually have a minimum balance requirement, and if you drop below the minimum, you’ll be liable for fees.
The amount of extra interest you receive depends on the bank. The money market will pay you extra money because the bank is using your funds to invest in securities that pay a yield. There is a very small chance that a money market account can lose money, but you are paid for the risk with additional interest.
Certificates of Deposit
One way to earn higher rates of interest than a savings account is to invest in a certificate of deposit (CD). These will pay more than you would receive for an average savings account.
However, a CD comes with some strings attached. Banks want to know that they will have access to your money so they can lend it to their customers. As a result, CDs lock up your money for the duration of the deposit. The bank will charge you a penalty for an early withdrawal. The longer you are willing to let the bank hold your money, the higher the rate that they will be willing to pay.
Debt Management Strategies
Many debt management strategies begin with getting organized and on top of your bills. If you’ve had bills fall through the cracks, the first thing that you need to do is figure out what you owe and when. You can do this by taking advantage of any one of a number of personal finance apps or programs.
Here are some helpful steps that you can take in order to both manage and reduce your debt:
- Pay debts that charge you the highest interest rate first.
- Take any extra money that you save from interest payments and use it to pay back other debt.
- Always make sure that you have an emergency fund so you do not end up in debt for unplanned expenses.
- Make sure that you have a debt repayment strategy that fits your individual financial situation.
- When possible, take advantage of the ability to refinance or consolidate your debt.
The best strategy for paying back debt is being methodical until you reach your goal of being debt free. In a way, it is all about mindset. You should have a system in place that reduces your opportunities to stray from it and locks you into the goal of debt repayment. You can incorporate the savings vehicles above to help you improve your financial situation and get out of debt.
If you’ve struggled with debt or want to stay out of it in the future, a financial advisor can be a valuable guide. Contact us to be matched with one today!