Today, I’d like to START a new video series on different types of accounts investors should open…
Afterall, one of the questions I receive most frequently from new clients is what type of accounts they should open to achieve their goals.
There are a myriad of accounts to choose from, each with different purposes and features. Utilizing the right types of accounts to hold your cash and investments may have a variety of benefits, including minimizing taxes, easing administrative issues, and growing funds more effectively. This is why understanding the plethora of options available to you is imperative for financial planning.
In this video series, I will outline different types of accounts plus factors Orthodox Jewish families should consider before opening them. The lifestyle for frum families differs from folks in other demographics, and, therefore, the types of accounts frum families prioritize may be different than what is typically recommended. This overview is a good starting point, but is not an exhaustive list, so please speak to your financial advisor, estate planning attorney, and accountant to get their insights on what approach makes sense for your family.
First, there’s the Checking account: A checking account is a fundamental financial tool for managing everyday expenses and easily accessing your money. The salary for each breadwinner in your house should go into this account, where the funds can be used to pay your bills. It is recommended to have 3 to 6 months’ worth of expense money sitting in your checking account. For folks that are retired, a year or more’s worth of cash sitting in this account is prudent.
Every family needs a checking account and opening one at a large reputable institution is advisable. Stick to the funding guidelines without going overboard. Having too much cash sitting in a checking account is typically a poor decision, as you are losing buying power due to inflation.
Next there is a Savings Account: A savings account is a type of bank account designed for individuals to store their money and earn interest on their deposits. The percentage of interest earned within a savings account is typically higher than a checking account.
I don’t advocate for most families to have a savings account. Funds needed for expenses should be held in a checking account, where they are easily accessible and liquid. Funds being saved for your financial future should be put into a retirement account. Money that you plan to use for more near-term goals, but not daily expenses, should be in a brokerage account and invested according to your goals. Too often, folks will tell me that they have accumulated a large pool of cash sitting in their savings account, which is earning a shvach return and losing buying power due to inflation. There are more constructive ways to save and put this money to work outside a savings account.
In my next video I will start discussing investment accounts that facilitate the growth of one’s money to accumulate significant level of wealth and to achieve one’s goals.