The 4 Personal Finance Accounts You Need Post-Grad
So you've just graduated and you want to tackle your personal finances but you aren't sure what the key personal finance accounts you need are. ICYMI, we just hosted ✨Alysse Godino of Saffon Money✨ for our first-ever Young, Not Broke Live! event to guide us through post-grad finance planning and she gave us some awesome advice.
Here are the 4 accounts you need in your personal finance stack to kickstart your financial journey according to her.
Checking Account 🏦🏧
A checking account is where you'll deposit your paycheck, it's where your income will flow in. Everyone needs one checking account and it's easiest to just consolidate everything into one account, even if you have multiple sources of income.
For most people, opening up a checking account is the first financial step they take. When you open a checking account with a bank, you'll usually receive a debit card and/or an ATM card as well. It doesn't matter what bank you choose, just choose one and stick with it.
Alysse says it's important to find a bank that works for you. Here are a few things to look for:
Good Customer Service: Helps you figure out any bumps along the way and they're there to answer any questions you have.
Account Fees: Some checking accounts have fees that kick in if you don't maintain a minimum account balance or if you don't do direct deposit. Many banks also have no fees for being a student so ask them about any discounts they might have!
Physical Location: This is important if you want to withdraw cash with your ATM card. Some banks will charge you a fee if you use a different bank's ATM card at their ATM. Check to see what ATMs are in close proximity to you.
Recommendations ($0 Fee Accounts)
We aren't being paid to recommend these accounts, but we did some sleuthing on the internet to give you a few choices to start with.
Capital One 360 Checking
Discover CashBack Debit
High Yield Savings Account 💵
Because free money!! Let me explain. A high yield savings account (HYSA) is a savings account that pays you a little bit of interest to keep your money there. Interest rates are pretty low (1.3 - 1.5%) but it's still free money just for having money in your account each month.
It's important to note that interest rates will fluctuate. Currently, they are on the lower end because of the pandemic's effect on the economy but some interest earned is better than no interest earned.
By not keeping your savings in an HYSA you're losing out on free money. By keeping your savings separate from your checking, you're less inclined to spend it all way. Within your HYSA you can also open multiple accounts for different savings goals. Personally, I have a Rainy Day Fund and a Travel Fund.
Alysse recommends finding an online bank that meets your vibe. Here are a few things to look for:
FDIC Insured: This means that if they suddenly go out of business, your money is insured federally up to $250,000. This is KEY.
Good Customer Service: High yield savings accounts are typically offered by online-only banks so there is usually no physical location you can go to. Therefore good customer service is key if you run into any bumps along the way.
No Requirements: Some HYSA will require you to make a certain number of transfers or maintain a minimum balance and will charge you a fee if you don't meet these requirements. There are a number of HYSA that don't have these pesky requirements!
Again we aren't being paid to recommend these accounts, these are the best ones we found after doing some digging on the internet.
Marcus by Goldman Sachs (Alysse and I personally use this one.)
Capital One 360 Performance Savings
Brokerage Account 📈📉
You'll want to have a non-retirement related investment account. So this is outside your 401K and Roth IRA accounts. Once you have a fully-funded emergency savings in your HYSA (Alysse recommends 3-6 months of monthly expenses) and are making monthly contributions to your retirement accounts (401K/403B, Roth, or both), the next step to take is to make monthly contributions into an investment account as well.
The benefits of this are that the cash is liquid, meaning it's more accessible as you can withdraw money from this account by selling your investments and not have to pay a fee like you would with your retirement account. Another benefit is that on average you can earn about 8% by investing in the stock market. Obviously things look a little different right now, but if you have long term savings goals this is a good way to save for them.
There are a ton of options for brokerage accounts out there. If you'd like to have everything in one place, opening up your brokerage account at the same place as your employer sponsored 401K or your Roth IRA accounts will streamline things. But if you really like a certain brokerage or want to use a roboadvisor, then open up an account there!
Again not paid by any of these companies, but here are some popular options!
Regular Brokerage Accounts:
Roth IRA Account 👵🧓
A Roth IRA is a post-tax retirement account which means that the money you put in your Roth IRA, you'll have already paid taxes on. So when you retire and want to withdraw that money for an all-inclusive resort on a remote island, you won't have to pay taxes on it! As most of us are early in our careers, we're also probably at a lower income tax rate than we would be at during retirement.
There are some rules with the Roth IRA. For 2020, if you're making more than $139,000 and filing your taxes as a single, then you can't contribute to a Roth IRA. The contribution limit for 2019 and 2020 is $6,000, which means you can't put more than $6,000 in your Roth IRA for those years.
Obviously, having a Roth IRA shouldn't deter you from opening up a 401K through your employer as well, but Alysse says that a Roth IRA is a must for every college graduate. It's an easy way to start your retirement fund on your own.
Tons of options available here too. If you read our series on investing, you know that you can open a Roth IRA with any brokerage or roboadvisor. It all depends on what investment strategy you want to use. Do you want to invest money by picking your own assets, through a target-date fund or through a roboadvisor? The answer to that question will determine which account you open.
Regular Brokerage Accounts:
Now you know the 4 accounts that are essential to a well-rounded personal finance stack for recent graduates! Personal finance is very personal so look at your own numbers and see what makes sense for you. You don't need to open all 4 accounts at this moment. Start with an emergency or rainy day fund and go from there! If you have student debt, credit card debt, or any other money you owe, that will also factor into the steps you take.
Action Items 💪
Before you do anything at all, you'll need to understand your financial picture. What is your cash flow and what are your expenses? What assets do you have and how much do you owe? Alysse recommends writing out all of these numbers and getting a good financial picture before taking any steps.
Research what accounts would be best for your needs. Think about how often you'd need to access them, if you want a physical location to go to, etc.
If you don't have a checking account, open that up first! This is where all your income will be coming in. Also, set up direct deposits to make your life easier - for certain accounts this also waives fees.
The next step is an emergency fund. Alysse recommends 3-6 months of expenses to be put into this account. So before you open up any other accounts, make sure you have this saved up so that no matter what happens you have some runway to keep you going.
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Disclaimer: The content on Young, Not Broke is for informational and educational purposes only and should not be construed as professional financial advice. Should you need such advice, consult a licensed financial or tax advisor.