Previously Carl Carlson from Carlson Financial talked about budgeting, improving your credit score, and putting money aside an emergency fund.
If you’re still looking for ways to improve your financial position, you’ve probably thought about investing.
The first step to take when saving or investing for the future is to identify your goals and decide whether those are short-term or long-term goals.
Be deliberate about what you are saving for, because it will make a big difference in how you save, Carlson said.
You may be able to use tax-advantaged accounts for certain things, and the time frame you have will determine the types of investments you want to use.
Tax-advantaged accounts include retirement accounts and education accounts. These may be mid to long-term savings goals and you might be able to invest in them more aggressively.
Depending on the different types of accounts, you may be able to deduct your contributions in the current year or to pay taxes on it now to be able to withdraw it tax free down the road, Carlson said.
Some people might also be able to put money aside for medical expenses in their Health Savings Accounts or Flexible Savings Accounts (HSAs or FSAs). Some employers offer Dependent Care Flex Savings Accounts in which you can put money aside for child care costs.
For all these accounts the money is set aside pre-tax and withdrawn tax-free when you use it to pay the eligible expenses. Carlson said these accounts are generally for more short-term expenses.
If you are saving up for something in the next one to three years, maybe a car, a down payment for a house or a big vacation Carlson says there aren’t a lot of good options right now.
Interest rates aren’t paying a whole lot, but it’s probably not worth it to put your short-term savings at risk in the hopes of getting a better return.
Think about how liquid you need it to be and whether you can accept any loss on it. If not, a savings account, money market fund or CD are probably your best options. Other options include TIPS, short-term bond funds, or simply use the money to pay off some high interest debt.
The most important thing is time - the sooner you can start investing money, the more time there is for it to earn interest, compound, and appreciate in value. Carlson reminds us time is something you can’t get back.