The Mom Weekly Volume 46: June 18, 2024
I’m a part of a Facebook group that is about finance for people near or in retirement, and while I almost never post or even comment, I find a lot of helpful information and sources.
An older woman recently posted how she has crippling anxiety about having “enough” in retirement. She wanted some advice from people before she meets with a retirement planner later this month. She said her husband has taken care of most of the financial aspect of things, and she really didn’t know where to start. (The husband is still alive, but she wanted to be an active participant in their future plans).
Most of the advice was fairly specific—set up a Social Security account to check what your benefit will be; be ready to talk over your retirement goals and needs, etc.
But it occurred to me (and several others) that this woman needed to be given permission that she could and should do a lot of these things herself, and that starts with self-education.
So I commented that besides “knowing her numbers,” she should start by reading good books about personal finance with a range of different perspectives. I called it her “self-education.” Over time, I said, she would gradually develop her own approach, and this would give her more comfort with her own situation. Some of what I said I will put in another Mom Weekly, because it was really long!
Like this woman, most people—myself included—tend to put off things that are good for us. We are prone to inertia, and that can be true for anything—cleaning out a junk drawer, making our annual check-ups, planning things with friends. And it’s especially true for finance issues.
When it comes to money, many people have either analysis paralysis; anxiety about even knowing about money issues; or have little interest in their money, or think it makes no difference. What’s the solution?
Take small steps.
Every little thing that you do gets your financial life more in order, and instead of saying, “I must do absolutely everything all at once.”
So let’s start with a simple thing that is likely to have a decent (or better) payoff for nearly everyone: getting money into a high-yield savings account. Let’s do it together, shall we?
One Small Step: Banking
Chris Hutchins of All the Hacks did an episode on the best bank accounts to optimize your money based on features, interest rates, and more. Personally, I love this kind of “deep dive” If you do, too, you can find that episode here.
But if I’m honest, many of the people in my life, and most people in general, would find this kind of detail overwhelming, and give up after about five minutes. And yet: just about everyone would benefit from having their cash earning a decent amount of interest, and it’s pretty easy to do so.
Let’s take a hypothetical person who received a giant tax return or other windfall of $10,000, and wants to put it somewhere safe and also optimized.
Option 1: under the mattress.
Safe? No. Your house could burn down, or it could be stolen.
Optimized? No. Need I explain more?
Option 2: deposit it in your basic checking or savings account with the bank you’ve had for a long time.
Safe? Yes.
Optimized? No. Most checking and savings accounts offer next to nothing in interest.
Option 3: deposit it in a high yield savings account
Safe? Yes, assuming you are using a reputable bank.
Optimized? Yes, depending on the interest rate.
Option 4: put it all in Gamestop stock.
Ha! No.
So let’s assume that Option 3 is best, but you don’t yet have a high yield savings account. Where to start?
As a baseline, most people have a checking account, and perhaps a savings account, at a bank. Money in those accounts earns next to nothing in interest. When interest rates were a lot lower, this wasn’t quite as non-optimized as it is today.
Opening a High-Yield Savings Account
If you’re a “money nerd,” then of course you might look into various accounts and banks, like the All The Hacks episode. But if you’re not, I encourage you to choose a bank you’re familiar with that also offers high-yield savings accounts, and open a savings account.
Two of the most well-known banks that offer simple high-interest (or high-yield) savings accounts are Discover Bank and Capital One. Each one’s basic savings account automatically offer a pretty decent rate of interest — 4.25 percent interest.
Here are some screenshots to get you started:
Here’s the page for Capital One savings accounts.
Here is Discover (random note: for people new to Discover savings, Discover has a $150 or $200 bonus for those who can deposit $15,000 or $25,000. If that’s you, it is free money and worth doing. You’ll get the bonus in addition to the great interest rate.
You’ll notice both have no fees, and no minimums. That’s important, as some banks have high minimums or high fees.
Both account types also have an automatic interest rate. Some banks require you to have a specific “kind” of account to get the high-yield interest rate, and people have learned the hard way they had the next-to-nothing rate when they thought they had a high-interest one.
Once you open the account, you will link your current bank and transfer over as much or as little as you like.
Running the Numbers
Let’s run some numbers, taking the hypothetical person with the $10,000 just sitting in a basic checking or savings account. By transferring over that money and letting it sit, they would earn:
- $425 each year
- $35 each month
That may not be life-changing money, but wouldn’t you be glad to find $35 (even more so $425) that you didn’t know about in your junk drawer? Because it’s probably easier to open a high-yield savings account as it is to clean out a junk drawer.
That compares to:
- $0 for option 1 (under the mattress)
- $3 for option 2 (basic checking/savings at a typical bank—interest is .03% or less)
Of course, interest earned on savings accounts is taxable. But even if your tax rate is 30 percent for both federal and state (on the high end for most people), you’d still have:
- $297 each year
- $25 each month
And of course, there is the compounding effect, so in subsequent years the amount would be higher.
Bonus Points
For bonus points, you could set up multiple savings accounts, as I have done, for different categories (charity, travel, auto, emergency fund, gifts, etc.).
And for even more bonus points? Take a moment to set up direct-deposit of a small amount—even a few dollars — of each paycheck to a few accounts monthly to help fund both needs and wants.
We could get into the idea of maybe purchasing CDs, or I-Bonds, or some other instrument that would provide a higher interest rate, and a more guaranteed rate for a longer time period. But for now, just get your high-yield savings account set up, and thank me later!
Remember how much I love you,
Mom
Interesting/Notable:
Our family friend Lindsey on the problems with “abolishing families”–Verily
The case for showing up to church—even if you don’t believe in God–America Magazine
An action item: Strip (Some) Laundry
This article describes how and why to strip your laundry. I do this periodically with workout gear, some shirts, and other items that start to get a little funky, even after washing. Give it a try! It’s really satisfying.
What are you doing this weekend?
So, now that it’s Tuesday, what are you planning for the weekend? I’m going to suggest trying to cover four “F”s to get ideas flowing:
*faith—when are you going to Mass?
*friends—what friends will you see or connect with?
*food—any fun recipes you plan to try, or restaurants you plan to visit?
*fun—anything interesting you are going to play, watch, or do this weekend? Now’s the time to think it through, and put it on the calendar (even informally).