We know saving AND investing are vital to our family’s and finances’ long-term health. However, most of us will start on the savings side.
As savers, we have more tools at our disposal than ever, and navigating the sea of options may be challenging.
Luckily, I am here to put three solid strategies to the test. Using all three of these tools together will yield the best results for your portfolio. Let’s begin.
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What is a high-yield savings account? An HYSA account, usually from an online bank, pays much more than a standard savings account.
Online banks can afford to pay you more interest because they don’t have physical stores eating away their profits. A standard bank account pays roughly 0.1% interest, while my Discover HYSA pays 2.0%.
What is a Certificate of Deposit Ladder? A CD is a savings vehicle where you “lock” your money away with the bank for a specified time. The bank pays you a higher interest rate for your trouble.
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Currently, interest rates on CDs are between 3-4%. When using CD Ladders, you purchase CDs of various lengths and rates. As they mature, you find higher yields to keep putting your money to work.
What are Series “I” Bonds? You can purchase Series “I” Bonds directly from the US Government website TreasuryDirect. For these bonds, you lend the government money for 30 years.
The bonds have a fixed rate plus an inflation-adjusted rate—combining the two rates gives your interest monthly. They adjust the inflation rate every six months.
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Because inflation has been so high, the combined rate on Series “I” Bonds has been over 9%. This is much higher than average. For the next six months, we expect roughly 6%.
How to allocate your savings vehicles. Now, as a saver, you must be intentional about where you place your money. Ask yourself these questions.
- What is the most expensive emergency I foresee?
- Do I have debt?
- Do I feel comfortable using credit cards?
- What are my medium-term savings plans?
- What are my long-term savings plans?
What is the most expensive emergency I foresee? This question is crucial because it will determine how much money you keep in your HYSA. This will be the quick response portion of your emergency fund.
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For non-homeowners, your top expense will be car trouble or maybe a family emergency. Having $7,000-$10,000 in your HYSA should be enough.
For homeowners, your roof and air conditioner are your top headhunters. I would keep $10,000-$15,000 in an HYSA.
Do you have debt? If you have debt, you will need to pay it off quickly. Dave Ramsey recommends keeping $1,000 in your HYSA and paying the rest of your debt off before saving more. I can’t argue with this thought process.
Do I feel comfortable using credit cards? Credit cards can be a good resource if you have no debt and a good amount of cash flow.
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I personally prefer to use my credit cards instead of my HYSA for minor emergencies. I know that I hate credit card debt so much that I will pay it off quickly.
When you use your HYSA directly, it may be hard to rebuild your savings. This is just my personal preference. Dave Ramsey hates all use cases of credit cards, so you’ll have to form your own opinions here.
What are my medium-term savings plans? CD Ladders will help you with your medium-term savings. Earning 3-5% can help boost your savings while keeping your emergency fund stocked.
Do you need to have savings goals? Yes, you absolutely need to have plans for your savings rate. A goal can be to purchase a $1,000 CD every three months, etc.
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What are my long-term savings plans? Series “I” Bonds are your long-term savings plan. These bonds are your best bet if you do not invest in the stock market.
There is an individual limit of $10,000/year for Series “I” Bonds. But, you can then purchase that amount for your spouse and kids. So a family of four can invest $40,000/year in Series “I” Bonds.
Small businesses can also buy Series “I” Bonds, which is a good reason to incorporate your small company. Series “I” Bonds mirror a dividend growth portfolio in the investing world.
Putting it all together. So how does it look when all of these work in tandem? I would start with the waterfall method for HYSAs and CDs.
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If I have a certain amount, say $11,000, in my HYSA, I would take $1,000 and invest in a CD. The next time I reach $11,000, I will do the same.
If I have an emergency, I will work on refilling my HYSA until I get to $11,000 again. I would repeat until I am rich.
Series “I” Bonds are incredible because you can automatically invest through the website. I would set an amount such as $100/month to buy the bonds.
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As I get pay raises, I would increase the amount I purchase in Series “I” Bonds. If I get a windfall or bonus, I will make a large purchase of bonds.
Conclusion. When everything works together, you will become richer every month. Ensure you document your financial journey every single month.
You can build a massive portfolio and grow your wealth even if you are risk-averse. Eventually, you will probably move into investing.
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Don’t be fooled by the media; these saving vehicles are all powerful investment tools. The media will try to push you towards using a financial advisor, but you can do this.
Take the time to learn the TreasuryDirect website. The next step after Series “I” Bonds is investing for interest payments via Treasury Bonds.
Keep learning, growing, and saving, and you’ll feel more financially secure than ever. Trust me; when you are confident in your money habits, you’ll be on top of the world. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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