What’s your plan to reach your goal?
You could just add up whatever’s left over in your bank account after you pay your bills each month. But putting that money in a separate investment account instead can have major benefits.
It keeps you from buying something else
No matter how much you really want to check this savings goal off your list, it’s all too easy to spend the money on something else when it’s just sitting in your bank account.
Maybe you think that willpower alone will be enough to keep you on course. If so, that’s great! But what if it doesn’t?
The best way to ensure that your money goes toward your goal is to move it out of your bank account before you’re tempted to spend it. Keeping this money in a separate account also makes it easier to see the progress you’re making toward your goal.
It gives you a chance to reach your goal faster
Let’s say you want to save for a down payment on your first home. You expect to need about $10,000, and you budget $200 a month toward your goal.
Keeping the money in a bank account typically means you’ll earn a pretty low rate of return—0.5%, for example.
At that rate, it will take you a little over 4 years to reach your goal, during which you’ll deposit a total of $9,800.
If you instead invest the money in a moderate-risk mutual fund or ETF (exchange-traded fund) and earn an average return of 5%, you could reach your goal 4 months earlier—with total deposits of only $9,000.
By investing, you could reach your goal with less time and money
References: