Rachael and I are always looking for ways to save money and eliminate waste in our budget. We’ve worked pretty hard to keep that waste at a minimum, but occasionally, there are places to trim. Obviously, we are huge proponents of creating and keeping a budget, but at some point, you’ve optimized as best you can. There’s no more waste, and every dollar has a purpose. At this point, the only option left is to earn more money.
Now, don’t get me wrong. You shouldn’t wait to work on earning more money until you’ve optimized your budget. You can work on both. And, if you can’t keep a budget, as you earn more, you’ll just spend more, so it’s critical that you figure that part out.
However, once you get your budget dialed in, you can really start putting your savings to good use.
Let’s look at an example.
Let’s say you’ve been saving hard for years and have stockpiled quite a bit in your savings account. You might have $20,000, $40,000 or even $100,000. Now, let’s not get into the whole debate over how much you should have in your savings account. There are too many factors such as your monthly expenses, your risk tolerance, and your comfort level with being able to cover even the biggest of emergencies.
Obviously, not all your money should go into savings – you should be investing in stocks, real estate, and other investments. This post is not about those kinds of investments. It’s about making money with your savings account.
Let’s say you’ve built up $50,000 in your savings account. You don’t (shouldn’t) need this money on a monthly basis, and you (should) only need to dip into it for emergencies. It’s probably earning a couple of dollars, at most, each year sitting in your savings account.
Did you know that you can easily set up a high yield savings account with someone like American Express and earn 1.25%? That would earn you $625/year if you have $50,000 in your savings account!
This may not seem like much but it will certainly add up over time and is money that you didn’t have to do anything for! It’s simply wasteful not to take advantage of these accounts.
For awhile, Rachael and I made this mistake, partially because we just didn’t apply for the account, but partially because we thought you had to leave the money in there for a certain length of time or it might be difficult to transfer it to our checking account in the case of an emergency, so we wanted to have enough readily available.
However, after looking into it further, we realized that with the American Express account, for example, you can actually transfer up to 6 times per month! We definitely aren’t going to need to transfer even on a monthly basis. So, it’s super liquid, and you can transfer it right from their bank to your bank online.
So, even if you don’t want to compound the interest earned on your savings, you could use it as a “treat yourself” or put it towards the Christmas fund or a few nice dinners out depending on how much it’s earning you.
I don’t know about you, but several hundred dollars of “free” money always sounds good to me =)