In this article, we’ll cover:

• Key differences between saving and investing
• When to save and when to invest

The key differences between saving and investing

Saving and investing are distinct financial concepts. While they both involve putting money toward the goal of increasing your assets in the future, they have very different functions and results when it comes to time horizon, potential for returns, liquidity, risk, and inflation. Once you understand the differences, you can determine how each fits into your financial plan. 

Your future goals

Some of your future financial goals are achievable sooner than others. If you’re looking at the short term, think of savings. If your goal is further into the future, consider investing. 

• Short-term goals: Saving can be a good choice for achieving short-term financial goals like taking a vacation, buying a car, getting a new computer, or putting a down payment on a home. Opening a savings account is also ideal for building up an emergency fund to cover large, unexpected expenses or get you by if you lose your job. 
• Long-term goals: In contrast, investing is more appropriate for achieving large goals far in the future, like paying for your kid’s college education or setting yourself up for retirement. Investments have the potential to grow your money more over time by earning higher returns than you’d get from earning interest in a savings account, but you may need to keep your money invested over the long haul to realize those gains. 

Potential returns

The return on investment (ROI) differs quite a bit between saving vs. investing. The entire point of investing is to earn returns. Saving is more about setting aside money over time, but earning interest in a savings account certainly does grow your money more than hiding it in your mattress. Most traditional savings accounts pay some interest, and you can often earn an even better rate with high-yield savings accounts, money market accounts, and certificates of deposit (CDs). Interest rates are variable, and often rise and fall in relation to inflation. The longer you keep your savings in an interest-bearing account, the more you can take advantage of compound interest, which is when the interest you’ve earned also earns interest. 

The ROI on different types of investments can vary greatly, but over the long term they usually outpace both inflation and what you could earn through interest in a bank account. The historical average return for stocks is around 10%, while bonds have historically produced 5% to 6% in returns on average. Other investment vehicles like mutual funds, index funds, and ETFs vary quite a bit in their average returns, since each fund contains a different mix of multiple assets. But because they usually hold stocks and bonds, funds tend to offer more lucrative long-term returns than a simple savings account. 

Impact of inflation

Inflation measures how much the cost of products and services rise over a given period of time. When inflation goes up, your purchasing power goes down; your dollars don’t go as far as they used to. This is an important consideration for your savings. If the interest rate on your savings account is lower than the inflation rate, it erodes the value of your savings over time.  

The money you earn today will have less purchasing power in a couple decades, so you want your investments to generate enough returns to compensate. Investing is often used as a hedge against inflation because the returns are generally higher than inflation over the long term. That’s why investing is typically advised for financial goals far into the future, like retirement. In fact, some investors pursue strategies intended specifically to profit from inflation. 

Liquidity (how accessible your money is to you)

Liquidity describes how quickly you can get your hands on your money. Cash is your most liquid asset; actual dollar bills in your wallet can be spent any time. Money in your savings account is also incredibly liquid because you can easily withdraw it at the bank or ATM. The only drawback is that some savings accounts charge a fee if you make more than six withdrawals a month. Liquidity gives you the flexibility you need to spend your savings, such as tapping your emergency fund for a big car repair or buying that TV you’ve saved up for when it goes on sale. 

Investments are typically less liquid than savings; the amount of rigidity varies among asset and account types. Certain types of investment vehicles, like bonds, may have a fixed term that requires you to stay invested for a certain amount of time. Stocks and shares of many funds are more liquid in that they can be sold any time, though it usually takes three business days to get your money. And if you’re selling stock because you need the money for an emergency, you run the risk of having to sell at a loss. Tax-advantaged retirement accounts, which are types of investment accounts, are extremely inflexible; you usually can’t withdraw money before age 59 1/2 without incurring steep penalties. Finally, if you invest in things like collectibles or real estate, your money is locked up in those assets until you can find a buyer, which could take a lot of time and effort.  

Risks involved

People usually think about risk when it comes to investing, but not savings. It’s true that putting money into savings is generally quite low-risk. As long as you keep savings in an FDIC-insured bank account, you’re protected even if the bank were to go under. That said, saving money comes with certain risks, too. For example, if you only keep money in a traditional savings account without investing some of it, you run the risk that it won’t grow enough to keep up with inflation, leaving you with a lot less spending power in retirement. There’s also the risk associated with variable interest rates. If your bank drops interest rates, the return you’re earning on your savings will drop as well. 

With investing, there’s always the risk that you could lose money if the value of your assets drops below what you paid for them. Business risk is the potential for a stock to lose value due to financial or management issues with the company. Geopolitical risk comes into play when things like war, terrorism, and trade relations impact the economy. And overall market volatility can cause the value of your portfolio to fluctuate. One way investors can manage these investment risks is by diversifying their portfolios. Diversification reduces risk by spreading the holdings in your investment portfolio across different asset classes like stocks, bonds, and funds. If one of your investments loses value, others may hold steady or even grow.

When to save your money

How do you decide when you should be saving vs. investing? Consider what you’re trying to achieve. Saving is well-suited to funding things you want within a few years and protecting your financial well-being when life throws you a curveball.  

• Financial goals: If there’s a large purchase you want to make in five years or less, saving for it makes sense. That’s too short a time to be confident that investments will grow, but not so long a timeframe that inflation is likely to seriously erode your purchasing power. 
• Emergency funds: If your dog needed emergency surgery tomorrow, could you pay for it without going into credit card debt? What about if you were laid off; how long could you cover your basic living expenses before your bank account was empty? These kinds of scenarios are exactly what an emergency fund is for. Putting aside money to cover unexpected expenses is one of the primary uses for a savings account.  

If you want to save up more, look for ways to spend less. From sticking to a budget to reducing discretionary spending to lowering your bills, reducing how much money you spend increases how much money you can put into your savings. 

Places you can park your cash and save

When you’re stashing money aside for an emergency fund or savings goal, you can put it to work earning interest so your savings grow faster. There are several different kinds of deposit accounts where you can store your savings, and they vary in the details of potential interest rates, liquidity, minimum balances, and fees.  

• Traditional savings account: A basic savings account usually offers a pretty low interest rate; the average APY (annual percentage yield) was 0.46% as of December 2023. But there are often low or no minimum balances or fees, making them accessible if you’re just getting started with saving.  
• High-yield savings account: This type of account functions just like a traditional savings account, but offers much higher interest rates. At the same time, many require you to maintain a minimum balance and might charge account maintenance fees, which can eat into your returns. There’s often a minimum opening balance, too, so you’ll need to already have some funds accumulated before you can open an account. 
• Money market account: If you want higher rates and more liquidity, money market accounts can be a good place to keep your savings. Their interest rates are usually close to high-yield savings accounts, and, unlike savings accounts, they come with a limited number of checks and debit transactions a month. That makes it even easier to spend your money when you want to. Be aware that minimum balances and fees are common with these accounts. 
• Certificate of deposit (CD): Savings and money market accounts offer variable interest rates, so they could go up or down at any time. CDs, on the other hand, give you a fixed interest rate for a set term, usually between six months and six years. CDs often have interest rates as good as or better than high-yield savings accounts, but the trade-off is a lack of liquidity. If you withdraw your money before the term is over, you’ll generally lose some of the interest you’ve earned. 

When to invest your money

Are you many years, or even decades, away from retirement, sending your kids to college, or putting a down payment on the house of your dreams? Do you have an emergency fund and enough money in savings for your short-term needs? Have you paid down any high interest debt? If so, it may be time to start investing your money. Investing is most likely to help you reach longer-term goals: things for which you need to build up a large amount of money, but you won’t need it any time soon. Consider investing when:

• You don’t need the money within the next five years: Keeping your money in investments for at least five or ten years may lead to better returns in the end. Long-term investing, also known as a buy-and-hold strategy, is the idea that you hang onto assets long enough to ride out the inevitable ups and downs of the stock market.
• Your employer offers 401(k) matching: Many employers will match your contributions dollar for dollar up to a certain percentage of your salary. It’s like free money for your retirement account. If your financial situation allows, invest at least as much as your employer will match so your retirement account grows more quickly. 
• You want tax advantages for retirement investments: The money you put into 401(k)s and traditional IRAs is pre-tax, meaning you don’t pay income tax until you withdraw it in retirement. Your contributions now are subtracted from your taxable income when you file your return, reducing your current tax burden. 

Whether you’re a hands-on DIY investor, prefer working with a financial advisor, or enjoy the ease of an automated robo advisor, opening a brokerage account is the first step in your investment journey.  

Saving vs. investing: strike the balance you need for financial security

Saving and investing aren’t mutually exclusive. Understanding how to use both strategies empowers you to work toward your goals in the short term and far-off future using the right types of accounts for what you want to achieve. Something saving and investing have in common: the sooner you start, the more time your money has to grow. Start finding your balance today.

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The post Saving vs. Investing: 2 Ways to Reach Your Financial Goals appeared first on Stash Learn.

When your income barely covers your monthly expenses, it can be tough to find extra money to put into savings. Yet putting aside money for emergencies and future goals is an important part of building long-term financial security. The good news is that there are several strategies you can use to cut costs and begin saving.  

In this article, we’ll cover these savings tips:

1. Estimate your income
2. Identify your fixed monthly expenses
3. Manage your variable expenses
4. Don’t forget about periodic expenses
5. Prepare for unexpected expenses
6. Compare your income and expenses
7. Choose your budgeting method
8. Remember to budget for discretionary spending
9. Implement the 30-day rule
10. Try a cash diet
11. Delete online payment info
12. Plan out meals to reduce food waste
13. Be strategic at the grocery store
14. Make more coffee at home
15. Reduce restaurant spending
16. Use a cashback credit card
17. Opt for thrift stores and local shops
18. Use browser extensions for online shopping
19. Explore community events and free concerts
20. Compare car insurance plans
21. Maintain a good driving record
22. Take a close look at your coverage level
23. Remove policy add-ons you don’t need
24. Switch to LED bulbs
25. Optimize laundry habits
26. Adjust your refrigerator temperature 
27. Use your dishwasher’s air-dry setting
28. Manage home’s temperature
29. Change furnace filters regularly
30. Conduct a home energy audit
31. Cancel unnecessary subscriptions
32. Look for ways to save on essential subscriptions
33. Choose a debt repayment strategy
34. Consider debt consolidation
35. Establish an emergency fund
36. Plan for short-term goals
37. Set medium-term goals
38. Focus on long-term goals
39. Check your current savings account interest rate
40. Switch to a high-yield account for better earnings
41. Automate transfers to your savings account
42. Define your financial goals and values
43. Limit your time on social media
44. Have a weekly money date
45. Celebrate your financial wins

Track your spending against your income

Scouring through a list of all the best ways to save money can be fun. But before start trimming down your spending, you need to get a clear picture of where your money is going every month. So, the first step in saving money is to track your spending and compare it to your income. 

Here’s how.

1. Estimate your income

Income is all the money you bring home. You need a clear picture of what’s coming in to make sure you have enough to cover your expenses and savings goals. Make a list of all sources of income, which might include:

• Your net pay from your job 
• Extra cash you make from a side hustle or passive income stream
• Child or spousal support
• Disability or veterans benefits
• Dividends or other income from investments

2. Identify your fixed monthly expenses

Fixed expenses are your life’s must-haves. They’re usually consistent every month. Understanding these is crucial for creating a budgeting plan and avoiding credit card debt. Common expenses include: 

• Rent or mortgage
• Utilities, like electricity, water, and gas
• Phone and internet
• Health insurance
• Healthcare, like prescriptions and regular doctor appointments
• Minimum debt payments, such as student loans and car payments
• Transportation, like bus fare, gas usage, car insurance
• Childcare and school tuition
• Streaming services and subscriptions
• Membership fees, like a gym or co-working space 

3. Manage your variable expenses

Variable expenses are just like they sound: spending that varies from month to month. While the amount of money you spend may change, you can get an average by tallying up what you’ve spent over the last six months and dividing by six. Expenses you may want to capture:

• Groceries
• Dining out
• Entertainment
• Pet costs, such as food, grooming, doggy daycare
• Home maintenance
• Medical and veterinary bills
• Travel
• Gifts
• Personal care and wellness

4. Don’t forget about periodic expenses

Periodic expenses occur less frequently, so they’re easy to forget about. But you’ll need to add them to your budgeting plan if you want a complete picture of your finances. The key is to break these costs down into how much they cost monthly. 

For example, if it costs $120 a year to renew your car’s tags, divide that amount by 12 to get $10 a month; that’s how much money you’d need to put aside each month to have the amount you need when the bill comes due. Check your records for expenses like:

• Annual vehicle registration
• Annual tax preparation
• Quarterly utilities
• Subscriptions that renew annually
• Car maintenance
• Home maintenance
• Periodic healthcare, like new glasses or annual physicals 
• Clothing and shoes
• Household items and furniture

5. Prepare for unexpected expenses

Unexpected expenses like emergency repairs and medical bills are unpredictable. Creating an emergency fund can be a good way to cover these costs without having to rack up credit card debt. Some unexpected expenses you could save for include: 

• Car or home repairs
• Medical and dental bills 
• Unplanned travel
• Emergency vet bills
• Weather emergencies
• Replacement appliances
• Unexpected sudden loss of income

6. Compare your income and expenses

Once you’ve gathered the info about your income and expenses, it’s time for some simple math. Add up all your monthly expenses, including averages for variable expenses and periodic expenses. Then tally up your monthly income. 

When you compare the two numbers, ideally your income will be larger than your expenses. If it’s not, you may want to consider how to save money by reducing discretionary spending or trimming the cost of necessities.

Create a budget that works for you

With your list of income and expenses in hand, you’ll be ready to make a budget. In its simplest form, a budget is a list of your planned monthly income and expenses. Once you set it up, you can track spending in real-time, compare it to your plan, and adjust as needed. 

Making and sticking to a budget is half the battle of saving money. It gives you a clear picture of your finances in real time and helps you plan for your goals, like getting out of debt, saving up for a vacation, or building an emergency fund. 

It also allows you to manage short-term spending, like whether you can order take-out for dinner without putting yourself in a pinch when your car payment is due. 

7. Choose your budgeting method

There are many approaches to budgeting, including budgeting for young adults. While they all have benefits, what matters is finding one that works for you. Here are a few popular budgeting methods you might try:

• 50-30-20 budgeting: You categorize your expenses and allot income accordingly: 50% to needs, 30% to wants, and 20% to saving and investing.
• Zero-based budgeting: You assign every dollar to a specific expense so that the difference between your income and expenses is zero. 
• Pay yourself first method: Each month you first set aside money for saving and investing, which cuts spending and prioritizes your long-term goals.
• Envelope method: You allocate funds to expense categories and put the money into literal or digital envelopes; when an envelope is empty, your spending on that category is done for the month.

8. Remember to budget for discretionary spending

While budgeting for the necessities, be sure to include space for some discretionary spending in your budget too. This promotes healthier spending habits, as it can be easier to stick to your spending plan when you have money specifically set aside for fun. Also, it can give you a bit of a buffer if you underestimate your needs in one of your budget categories.  

Cut out impulse purchases

Everyone has those moments: the last thing you want to do after a long day is cook dinner, so you open a restaurant delivery app and unwittingly spend a good chunk of your grocery budget on one meal. Or an ad for a cool jacket pops up on your screen, you click the link, and suddenly you’ve spent money you’d planned to put in savings on something you don’t really need. 

Impulse spending is only human, but it also creates a huge barrier to saving money. Consider trying these tricks to help you put the brakes on that spur-of-the-moment spending that undermines your budget plans.

9. Implement the 30-day rule

If you find you want to make an unplanned purchase, set the money aside and wait 30 days. This is known as a 30-day spending rule. If after a month you still want to buy the item, go ahead. But you may find that the delay takes some of the shine off of the thing that seemed so appealing at first glance, and a month later you might decide to put that money into your savings account instead.

10. Try a cash diet

A “cash diet” is where you commit to only making impulse buys in cash. Build it into your budget with an “allowance,” then take the money out in cash at the beginning of the month. Swiping a card makes impulse spending that much easier, but handing over actual cash has a greater psychological impact and makes you stop and think about the purchase more carefully. 

11. Delete online payment info

The more effort it takes to shop online, the more likely you’ll be to pause and think about whether you truly want to fork over your money on a whim. Delete your saved debit or credit card information on any website where it’s stored and forget the autofill option; when you want to buy something, get your physical card and enter the number. That little work might prod you to think about your budget and saving goals.

Look for ways to save on food

If you’re like most people, food is one of your three biggest spending categories. Between groceries and dining out, it can add up quickly. Here are a few ways to trim down food costs.

12. Plan out meals to reduce food waste

Feeding America states that America wastes 80 million tons of food, totaling $444 billion, each year. The USDA adds that the average American family of four loses $1,500 to uneaten food per year.

Planning out your meals and snacks for the week helps prevent groceries from being wasted. For instance, if a recipe calls for half a head of cauliflower, you can plan to use the other half later in the week instead of watching it go bad in the fridge.

13. Be strategic at the grocery store

Efficient grocery shopping and meal planning can lead to significant savings. Here are some other ways to help keep your grocery costs down and foster better savings habits:

• Scan sale circulars and grocery store apps to find the best deals, and use print or digital coupons. 
• Consider shopping at several grocery stores to get the best price on different items, if time allows. 
• Check your pantry before heading to the store so that you don’t double up on products you already have.
• Shop from a list, which will help you avoid impulse spending on products that grocers put in special displays.
• Purchase items in larger quantities and use them in several meals throughout the week or freeze portions for later use.
• Buy store brands or generic brands instead of name-brand products. Most have the same ingredients.
• Keep grocery trips down to once a week, if possible, which will force you to use up the food you already have at home.
• Shop online and pick up your groceries to avoid the temptation of going off your list while browsing the shelves.

14. Make more coffee at home

It’s probably not a good idea to cut out a coffee shop for good. It’s a cozy experience all in itself. But frequent visits to the coffee shop can quickly add up, especially when a large oat milk latte can easily cost $7, plus tip. Consider brewing more coffee at home and treating yourself to your favorite coffee shop once or twice a week.

15. Reduce restaurant spending

Dining out often can significantly impact your budget. Limit restaurant spending by exploring new recipes at home, opting for takeout over dine-in to avoid additional costs like tips, or taking advantage of restaurant deals and specials.

You don’t have to cut out restaurant food completely. Start with small amounts. Try to eat out one or two fewer times per week than you do now. Over time, continue to trim it back until your food budget is where you want it to be.

16. Use a cashback credit card

For necessary purchases like grocery shopping, consider using a cashback credit card. These cards return a percentage of the amount spent, reducing the overall cost and potentially saving you money over time. 

Only use this strategy if you’re sure you can pay your credit card balance in full each month. Otherwise, stick with your debit card or look for a debit card that earns rewards. 

Discover ways to save on shopping and entertainment

There are tons of ways to save on shopping and entertainment. Explore these practical tips to cut down your expenses while still having fun.

17. Opt for thrift stores and local shops

Skip the brand names and shop at thrift stores and local stores in your own city instead. You’ll find unique items at lower prices and keep your shopping cart total low. Plus, you’re supporting the community!

If you find yourself on a wedding guest list, use online thrift stores like Poshmark and Tradesy to snag the perfect outfit at a discount.

18. Use browser extensions for online shopping

Online shopping is convenient but can lead to overspending. To avoid this, use browser extensions. They help compare prices and find discounts, ensuring you don’t miss out on lower prices and keep those small amounts from adding up.

19. Explore community events and free concerts

One of the easiest expenses to reduce is entertainment costs. Your own city likely offers numerous free attractions and activities. 

• Explore local parks or community spaces for a change of scenery without the added expense. 
• Visit museums with no admission fees and community centers that host free events. 
• Look for free concerts that not only offer entertainment but also provide a chance to socialize and discover local talent.

Save money on car insurance 

There are many avenues to explore when looking at how to save money on car insurance: comparing plans, maintaining a good driving record, and taking a close look at your coverage level and add-ons.

20. Compare car insurance plans

Even if you’re happy with your current insurance company, requesting quotes from several other companies might reveal opportunities for saving money if you switch. You can also call your current insurer and ask if you’re eligible for any discounts; they’re often willing to offer an incentive to keep your business. 

21. Maintain a good driving record

Car insurance rates are based on several factors, including your driving record and your credit score. That means being a safe driver and improving your credit can save you money on car insurance. 

22. Take a close look at your coverage level

If you don’t have an outstanding loan on your car, another way to save money is to change the type of coverage you carry. Generally, there are three types of coverage available: 

• Liability insurance: Liability covers only the other person’s damages if you get into an accident; this is the minimum level of coverage required by law.
• Collision insurance: Collision pays to repair damage to your car if it crashes into another vehicle or object.
• Comprehensive insurance: Comprehensive covers damages and pays if your car is stolen or damaged by storms, vandalism, or hitting an animal. 

Collision and comprehensive insurance never pay more than what the car is worth. So, if you have an older car that’s worth less than your deductible plus the cost of annual coverage, you might be paying more than you need to; you could save in the long run by only carrying the liability insurance mandated by your state.

23. Remove policy add-ons you don’t need

Review your current policy to see if you’re paying for any add-on services that you don’t need. Many policies offer extras like rental car reimbursement, roadside assistance, or windshield repair. If you’re paying for them, consider whether they’re really worth the cost. 

Once you finish this process for car insurance, do it again for life insurance, home insurance, and any other policies you have.

Reduce your energy costs

Saving money on electricity can add up over a year. Much like with groceries, one of the simplest ways to start is to reduce waste. A few simple habits can boost efficiency and shave dollars off your bill.

24. Switch to LED bulbs

LED bulbs use 75% less energy than incandescent bulbs. Making the switch can work wonders in helping you cut down on your electricity bill.

25. Optimize laundry habits

Wash your clothes in cold water and avoid overfilling the dryer to conserve energy. Adopting these simple habits can significantly lower your energy consumption and reduce your utility bills.

26. Adjust your refrigerator temperature 

Maintain your refrigerator at 37°F and your freezer at 0°F, and clean the coils periodically to ensure optimal efficiency. Proper temperature settings and regular maintenance can help prevent unnecessary energy use and prolong the life of your appliance.

27. Use your dishwasher’s air-dry setting

Use the air-dry instead of the heat-dry setting on your dishwasher to save energy. This small adjustment can make a noticeable difference in your energy bill without compromising the performance of your dishwasher.

28. Manage home temperature

Close shades on hot days and turn off the air conditioner when not needed to reduce cooling costs. Being mindful of home temperature and making adjustments based on the weather can lead to substantial energy savings.

29. Change furnace filters regularly

Regularly changing your furnace filter ensures it runs efficiently, saving you money in the long run. A clean filter improves air quality and allows the furnace to heat your home more effectively, avoiding unnecessary energy waste.

30. Conduct a home energy audit

If you own your home, consider making energy-efficient updates. Your local utility company or a professional home inspector can conduct a home energy audit and tell you how much energy your home uses, where inefficiencies exist, and which fixes you should prioritize to save energy. 

Review your current subscriptions

Have you been keeping up with your Mandarin lessons, or is it time to let go of that language-learning app? When you turn on the TV, how many services do you rarely, or never, actually use? 

31. Cancel unnecessary subscriptions

When you’re looking for savings opportunities, review all your subscriptions. Keep the ones you use at least three times a week and cut ties the rest. Look at things like phone apps, music services, TV and movie streaming, print and digital publications, and any free trials you signed up for but forgot to cancel. What do you really use and need? Cancel subscriptions that don’t enhance your life.

32. Look for ways to save on essential subscriptions

There may be ways to save money on some of the subscriptions you want to keep. For example, some services have multiple tiers or allow you to share an account with friends and family to split costs. Also, some phone or internet plans have a streaming service included. Check to see if your library has a video or music streaming app.

Pay off high-interest debt

Whether it’s personal loans, student loans, auto loans, credit card bills, or mortgages, around 340 million Americans carry some form of debt. Saving money can be a struggle when your budget is burdened with monthly payments. Credit card debt is often a particularly tough hole to dig out of; the average credit card interest rate is 27.81% as of January 2024.

33. Choose a debt repayment strategy

The sooner you make a plan to get out of debt, the sooner you can stash more money away in your savings account, emergency fund, and investments. If your budget allows, start paying down your high-interest debt like credit cards, personal loans, and car loans. Doing so can also help you improve your credit score.

But which loans should you tackle first? There are two popular approaches:

• The avalanche method is focused on paying off the debt with the highest interest rate because that higher rate costs you more money the longer you hold the loan.
• The snowball method is based on paying off your smallest balance first, then moving on to the next-highest balance, to give you a sense of momentum and accomplishment.  

34. Consider debt consolidation

Debt consolidation can be a useful strategy for managing and reducing your debt. It involves combining multiple debts into one, often with a lower interest rate, making it easier to manage and pay off. This method can help reduce your monthly payments and save you money on interest over time, enabling you to allocate more funds towards savings.

Set realistic savings goals

Your monthly budget is a plan for what you’ll do with your money. That includes covering necessities like rent, groceries, and utilities as well as discretionary purchases. But your budget isn’t only about spending; it’s also your plan for saving up. So when you’re planning how to allocate your income, be sure to budget for savings. 

In addition to asking how to save money, ask yourself why you want to save money. That’s how you determine your goals, and saving up can feel more achievable if you determine specific, realistic aims.

35. Establish an emergency fund

When the unexpected strikes, your emergency fund is there to cover expenses that you might otherwise have to put on a credit card or leave your budget squeezed. Keep your emergency fund in a savings account so it’s easy to access in the event of things like a big car repair, medical bill, or even covering living expenses in the event you’re laid off. 

Ideally, you’ll have enough money to cover six months of living expenses in your emergency savings. That may sound like a large sum, but if you put a little aside each month, you may be surprised at how quickly it adds up.

36. Plan for short-term goals

Think about what you want to save for in the next one to three years. Maybe it’s fun stuff, like a vacation, a new bike, or a gaming console. You might want to save for practical things, like replacing your aging car or moving into a bigger apartment. 

For each goal, figure out how much money you’ll need, how long you’ll save, and how much you’ll have to set aside each month to get there. 

37. Set medium-term goals

Saving for things three to five years in the future is also more achievable when you set specific goals; your motivation to keep saving may be stronger if you can picture what you’re going for. You might save for a downpayment on a house, remodel if you already own a home, or start a small business

38. Focus on long-term goals

When you think a decade or more into the future, goals might be harder to picture, but saving for them now can help you get there. Building up retirement savings and paying for your children’s college education are big targets, so focus on consistently saving a certain amount over time. When the far-off future arrives, you’ll be better prepared for it.  

Open a high-yield savings account

If you’re wondering how to save money more quickly, think about interest. When your money earns money, you add more to your nest egg without lifting a finger. The higher your savings account’s interest rate, the more your money will grow. And with compound interest, the interest you’ve earned also earns interest, so your savings grow even more rapidly. 

39. Check your current savings account interest rate

If you’re keeping a large amount of money in a basic savings account at a big bank, you could be missing out on some serious earning potential. In December 2023, the average national bank savings account interest rate was only 0.47%, and it was a meager 0.01% at the largest banks.

If you don’t know your current savings account interest rate, log into your dashboard or look at your latest bank statement. While you have your bank accounts pulled up, review your checking account to see if you’re being charged any pesky bank fees that could be hindering your ability to save money. 

Use a high-yield savings calculator to see if you could be earning more.

40. Switch to a high-yield account for better earnings

If your current savings account isn’t earning much, take 15 minutes today to sign up for a high-yield savings account. A high-yield savings account can help you reach your short-term savings goals and build your emergency fund faster. 

These accounts work just like regular savings accounts; some have minimum balance requirements or monthly fees, but many don’t. With the proliferation of online banks and credit unions, there are a growing number of options; some online banks offer high-yield savings accounts with annual percentage yields of 4% or more. 

Curious about other ways to put your idle cash to work? Learn more about this investment.

41. Automate transfers to your savings account

Saving up money is an exciting idea in theory; in practice, though, it can take a lot of discipline. That’s where automatic transfers come in. Setting up an automatic monthly transfer from your checking account to your savings account is an effortless way to make sure you don’t accidentally spend. 

Another option is to have your employer direct deposit a certain percentage of your paycheck into your savings account. As the old saying “out of sight, out of mind” goes, tucking away your funds before you see them will help to reduce the likelihood that you’ll spend all of your money each month.

Stop trying to keep up with the Joneses

Your college roommate is posting photos from another Caribbean vacation. Meanwhile, you’re clipping coupons and eating leftovers for lunch. When you compare your life to what everyone else around you seems to have, it can lead to anxiety and poor self-esteem. 

Trying to keep up with the Joneses can lead you to torpedo your financial plan, spend money on things you don’t really want, and even accrue unmanageable levels of debt. 

Learning how to save money isn’t just about the logistics of budgeting and adding to a bank account. It’s also about adopting a mindset that puts your financial priorities first:

42. Define your financial goals and values

Get clear about your money values and both the short-term and long-term financial goals you’re working toward. This clarity will help you stay focused on your priorities, rather than getting swayed by others’ spending habits.

When you see someone else splurging, picture the things you’re saving for. This mental imagery can act as a powerful motivator and reinforce your commitment to your financial objectives.

43. Limit your time on social media

Minimize your time on social media and unfollow accounts that make you feel envious or discouraged. Reducing exposure to ostentatious displays of wealth can help alleviate the pressure to conform to societal spending norms.

Associate with people who have similar values and personal finance goals. Being around individuals with comparable financial mindsets can help reinforce your saving habits and reduce the temptation to overspend.

44. Have a weekly money date

Make a weekly date with yourself to update your budget and check on your progress. Regularly monitoring your financial situation keeps you informed and motivated to achieve your set savings goals. If you have a partner or spouse, be sure to include them. Only if they know your household financial goals and the steps you’re taking to achieve them, can they make fully informed spending decisions with household dollars.

45. Celebrate your financial wins

When you achieve something, whether it’s hitting a set savings goal or coming in under budget on your groceries, celebrate your accomplishment. Acknowledging your successes, no matter how small, can boost your morale and keep you motivated on your savings journey.

Save and invest for the long haul with Stash

Once you get clear on your goals and figure out how to save money in ways that work for you, you may find yourself looking for more ways to work toward your long-term financial health. And that could include investing. 

If that sounds daunting, you’re not alone: 90% of Americans say they want to invest, but nearly half don’t know where to start. Stash makes it easy to begin putting your money into the market with automated investing and fractional shares that allow you to become an investor with as little as $5.

The sooner you start saving money and investing, the longer your money has to grow. Whatever methods you use to save, and no matter how small you start, taking the first step can set you on the course toward long-term success. 

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Frequently asked questions about how to save money

What is the 30-day rule?

The 30-day rule is a simple budgeting technique where you wait 30 days before making a non-essential purchase. If you need help controlling impulse purchases, this rule is a good one to use. It helps you determine whether the item is a true necessity.

How can I save $1000 fast?

To save $1,000 fast, consider cutting non-essential expenses, selling unused items, working extra shifts, or finding additional sources of income. Creating a budget and tracking expenses can also help you best save for your goals.

How can we save money in the current economy?

In the current economy, you can save money by reducing discretionary spending, shopping smarter with discounts and coupons, and prioritizing needs over wants. Consider refinancing high-interest loans and consolidating debt to further reduce expenses.

How can I save money with high inflation?

During high inflation, prioritize essential expenses, and cut back on non-essential spending. Consider buying store brands instead of name brands, and look for discounts and sales. Also, keep money in interest-bearing accounts to offset the impact of inflation.

Is it safe to keep money in the bank during inflation?

Yes, keeping money in the bank is generally safe during inflation due to the FDIC insurance protecting deposits up to $250,000 per depositor, per bank. However, the purchasing power of your money may decrease, so consider diversified investments to hedge against inflation.

The post How to Save Money: 45 Best Ways to Grow Your Savings appeared first on Stash Learn.

In this article, we’ll cover:

• Why you need an emergency fund
• When emergency funds come in handy
• How much you should save up
• How to build your emergency fund
• Where you can keep your savings
• Emergency savings vs other savings

Why you need an emergency fund

Without emergency savings, you wind up sacrificing your future plans to stay afloat during a time of need. Think of your emergency fund as a double-pronged defense: it protects you in the moment when unforeseen expenses arise and safeguards your ability to build long-term financial health.

• Avoid racking up debt: An emergency fund prevents you from relying on credit cards or loans for unexpected expenses, so you don’t have to accumulate debt, pay interest on loans, or risk damaging your credit score.
• Don’t deplete your savings: Instead of withdrawing money you’ve earmarked for other savings goals, an emergency fund ensures you have a separate cache in case of a crisis.
• Protect your investments: With an emergency fund, you won’t be forced to liquidate investments before you’d planned to, potentially taking a loss in the process.
• Maintain peace of mind: Knowing you have money in reserve reduces the worry that a financial emergency could undermine your financial stability, especially during challenging times.

When to use an emergency fund

An emergency fund is a safety net to cover large expenses, generally over $1,000, or to sustain you if you lose your income. It’s crucial to use it only when it’s truly urgent and necessary; if you deplete your emergency savings for non-essentials or to cover normal monthly expenses, the money won’t be there when you genuinely need it.

Emergency expenses

An unexpected expense is just that: unexpected. That means you can’t necessarily anticipate what you’ll need emergency savings for. That said, there are some common scenarios in which people rely on an emergency fund. 

• Major car repairs: Situations like a car accident, engine failure, or a transmission issue can all pose a high financial toll.
• Home repairs: Whether you’re a homeowner dealing with a failing furnace or a renter fighting a bedbug infestation, unexpected home repairs can be costly.
• Medical emergencies: Health is unpredictable. From sudden surgeries to treatments not covered by insurance, medical expenses can take you by surprise.
• Unplanned travel: Sometimes, urgent trips are unavoidable. Whether it’s attending a family emergency, a funeral, or assisting a sick loved one, having funds set aside can ease the journey.

Income loss

Even the most stable-seeming job can go up in smoke, so it’s important to be prepared for the possibility of unemployment. If you face a sudden loss of income due to layoffs or health issues, an emergency fund can help cover your living expenses without going into credit card debt while you find a new job. 

Emergency cash is especially crucial if you’re self-employed or a gig worker, since government financial aid options like unemployment or disability benefits might not be available to you.

How much money should you have in your emergency fund?

A widely accepted rule of thumb is to keep three to six months’ worth of living expenses in your bank account for emergencies. The reasoning is that it can take many months to find a job, so you want to have enough to cover your living expenses in case of unemployment.

The exact amount for a healthy emergency fund will vary for everyone. To get a ballpark figure for yourself, jot down all your monthly expenses and multiply that by three (for the conservative side) or six (for a more comfortable cushion). The number you come up with might seem like a lot of money, and you may want to whittle it down by subtracting expenses you’d temporarily cut if you lost your job, like entertainment or treats. 

For example, say your total expenses add up to $5,000 a month. You’d need between $15,000 and $30,000 in your emergency fund to cover three to six months of living expenses. But if you were to remove some discretionary spending from your budget, you may find that $10,000 or $20,000 would be enough to get by if you tighten your belt.  

In reality, however, six months of living expenses sounds like an intimidating savings goal for most people. The good news is, you don’t need a specific amount of money to start an emergency fund. If you just start saving a portion of your paycheck based on what you can afford, your fund will grow over time.

How to build an emergency fund

Like any financial goal, building an emergency fund may sound daunting at first, but it’s much more accessible when you have a plan and tackle it in small chunks. 

The key is saving consistently and gradually increasing your contributions as you’re able.

Make a budget you can stick to

Building a budget is the foundation of managing your day-to-day spending, paying down debt, and working toward your savings goals. There are many different budgeting strategies out there, such as the 50/30/20 rule, the envelope method, and zero-based budgeting. The best approach for you is the one you can stick with. Include a line item in your budget specifically for your emergency fund so you’re adding to it bit by bit every month.

Automate your savings

One of the smartest moves you can make for your savings is to automate your contributions. By setting up a direct deposit from your paycheck into your savings account, you can tuck a portion of your earnings directly into your emergency fund before you even see it, thereby reducing the temptation to spend that money. Over time, this consistent, automated approach can significantly grow your emergency savings without feeling the pinch.

Take advantage of windfalls

Sometimes life drops a financial bombshell, but every so often you get a pleasant surprise as well. Windfalls like tax refunds, bonuses, and gifts are an opportunity to bolster your emergency savings. When you find yourself with extra money, consider channeling a portion into your emergency fund. Allocating windfalls to your savings can accelerate your fund’s growth, getting you closer to your financial goals without affecting your regular income.

Trim your expenses

Every dollar saved can be a dollar earned for your emergency fund. By reviewing and cutting back on non-essential expenses, you can free up more money for your savings. From cutting back on discretionary spending to reducing the cost of monthly expenses, look for practical ways to save money and funnel the extra cash into your emergency savings.

As you begin reviewing your spending habits, you might find some easy wins—such as canceling unused monthly subscriptions or seeking out the most cost-effective car insurance provider—these small changes can quickly reduce your total spending and free up dollars to grow your emergency fund.

Where to keep your emergency fund

When storing your emergency savings, two principles are key: liquidity and growth. Liquid means you can access your funds quickly and easily, without facing penalties. And growth is all about earning money on your savings. 

While it’s essential for your emergency cash to be accessible, you don’t want it to sit idle in your checking account. Opting for an interest-bearing savings account can help your emergency fund grow more quickly without you having to lift a finger.  

• Savings accounts: A traditional savings account offers a safe place for your money, typically with minimal or no fees. Many banks offer options with a low minimum required deposit; the trade-off is that these bank accounts usually pay lower interest than other short-term ways to grow your money.  
• High-yield savings accounts: These are similar to regular savings accounts, but offer a higher interest rate. This means your money can grow faster over time. Some might have higher minimum balance requirements or monthly fees, so be sure to read the fine print.
• Money market accounts: A money market account combines features of both checking accounts and savings accounts. Typically offering higher interest rates than standard savings accounts, they may also come with checks or debit cards. However, they might require a higher minimum balance and have monthly limits on transactions, making your emergency fund less liquid.

Emergency savings vs. other savings

Saving money is all about planning for the future, whether it’s unanticipated expenses or things you know you’ll need or want. An emergency fund is one component of an overall savings strategy; be sure you understand how it differs from other types of savings funds so you can plan accurately for all your financial goals.  

• Emergency fund: Emergency savings are for unexpected and significant expenses, typically those over $1,000, or even much more.  
• Rainy-day fund: Tailored for smaller unforeseen expenses, a rainy-day fund can cover living expenses you may not have accounted for in your budget. For instance, if there’s an out-of-the-blue spike in your water bill or a surprise visit to the vet, this fund comes to the rescue.
• Sinking fund: This is your planned savings pool. It’s for anticipated expenses you know are coming down the road, like regular vehicle maintenance, holiday gifts, or a vacation. When you have a solid emergency fund, you can rest assured you won’t have to siphon money away from these savings goals if you’re in a financial pinch. 
• Retirement savings: Preparing for your golden years is a marathon, not a sprint. Many people opt for tax-advantaged retirement accounts like IRAs or 401(k)s to maximize their savings. Withdrawing funds early can have substantial financial repercussions, so it’s extra important to rely on your emergency fund instead of tapping into retirement savings in a crisis. 

Protect your present and future with an emergency fund

An emergency fund equips you to navigate life’s uncertainties with confidence. And it also prepares you to work toward your longer-term financial health. Knowing you have a buffer to weather a financial storm empowers you to focus on saving and investing money to reach your bigger goals. 

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By understanding your income and expenses, you can create a budget using the 50/30/20 budgeting rule and determine just how much of your paycheck you should save or invest each month.

In this article, we’ll cover:

• Saving with the 50/30/20 budgeting rule
• When to break the 50/30/20 budgeting rule
• What to do with your savings
• Where to keep your savings

Determine your income and expenses

The first step to any savings strategy is to create a budget that will allow you to plan a specific amount to save after your expenses are covered each month. To get started, you’ll want to understand your income and expenses. That’s how much money is coming in and where it’s currently going. 

A good way to do this is to add up your income and expenses for the last two to three months, then calculate the average to get a sense of your usual monthly financial picture. Looking at a few months’ worth of financial records helps ensure you capture expenses that don’t come up every single month, and it’s especially important if you don’t make a consistent paycheck. 

To identify income, add up all the money you take home, which might include your paycheck, money from a side hustle, and payments from things like child/spousal support or government programs. Then take a look at your expenses: everything you’re spending your money on, including both necessities like bills and groceries as well as discretionary spending on things you want but don’t necessarily need. 

With a clear picture of your income and expenses in hand, you’ll be prepared to create your budget. 

Use the 50/30/20 budgeting rule 

The 50/30/20 budgeting rule can help you determine how much of your paycheck you should save by assigning every dollar you make to a bucket, determined by the percentage of income. 50% of your paycheck goes to your needs, 30% to your wants, and 20% to your savings/investments. 

What you consider a need versus a want is inherently personal and based on your unique situation and goals. For example, the nature of your work may require you to purchase a more powerful laptop. For you, that’s a need if you cannot do your work without it. Someone else may be able to accept a cheaper alternative, and a nicer computer would be considered a want.

Here’s how the buckets break down:

• 50% to needs: Everybody has different needs, but you can think about them as your necessary expenses. Typical needs often include rent or mortgage payments, utilities, insurance, car payments, groceries, debt payments, etc. Depending on your circumstances, needs also may include recurring medical costs, caretaking for a child or family member, education-related costs, public transportation, pet costs, tithing, and more. Look at your recurring expenses over the past few months to identify the expenses you have to cover each month and include them in your needs category. 
• 30% to wants: This category incorporates things like hobbies, vacations, dining out, streaming services, gym memberships, and recreational activities. The breakdown could end up encompassing many small expenses, like eating out, or a few larger ones, like a vacation or phone upgrade. Remember, it’s only a “want” if it isn’t necessary. For example, if you have to go to physical therapy to treat a medical condition, that’s a likely need, not a want. If you prefer the gym treadmill to running outside but could take the alternative, a gym membership may be just a want. It depends on what’s truly important to you.
• 20% to savings and investments: How you save and invest can also look different. You may want to focus on short- or medium-term saving goals like education expenses, a house or car, and building your emergency fund. Or you might want to invest for the long term with a brokerage account, an IRA or 401k for retirement, or an investment account for your children’s future education. Whether you’re saving for short-term goals or investing in your long-term financial future is very dependent on your situation. It is recommended that you start by building an emergency fund with enough savings to cover up to six months of expenses before moving on to other savings goals. 

When to break the 50/30/20 budgeting rule

Of course, how much of your paycheck you should save will depend on several factors, and the 50/30/20 rule doesn’t have to be exact. You may need more than 50% of your income to cover your needs, or you may need to save/invest more than 20% of your income to reach your goals. If you have a lot of debt or live in a high-cost-of-living city, for example, you may end up committing 60% of your income to needs, 20% to wants, and 20% to savings/investments. Or, if you’re saving for something important, you could rethink your breakdown and temporarily use a 50% needs, 20% wants, and 30% savings strategy. 

The 50/30/20 budgeting rule is a framework, and how you adjust it is dependent on your financial situation, lifestyle, savings goals, and needs. Here are a few specific scenarios in which you might want to allocate your income to categories a bit differently.   

High or low expenses vs. income

If your expenses are more than 50% of your income, you’ll need to adjust your budget strategy to compensate. First, identify what expenses are wants versus needs. If they’re mostly needs, adjust the 50% to cover the amount required. If they’re mostly wants, look for opportunities to reduce these costs to get closer to 30%. Even if you can’t commit 20% of your monthly income to savings/investing, you can still find ways to save money. Your priority is creating a realistic budget that works for you; saving 10% of your paycheck, or even just $10 or $20 a week, will build up over time. 

If your needs are less than 50% of your income, you have an opportunity to put more money into savings and investments. This is a chance to avoid lifestyle creep, which is when you artificially inflate your needs or wants to fit a higher income, and instead double down on achieving your financial goals. For instance, if you get a raise at work, you might consider putting some of that additional income toward your savings goals instead of increasing discretionary spending.

Large amounts of debt

If you have a lot of debt, especially high-interest debt, it may make sense to focus on paying down your debt before committing to saving 20% of your income. You’ll still want to maintain a healthy emergency fund, as emergencies can’t be avoided or predicted, but devoting more of your income to paying off debt faster will help you pay less in interest over time and could relieve some pressure on your budget. You can utilize the avalanche method, in which you pay your debts from the highest interest rate to the lowest, or the snowball method, where you pay down debts from the smallest to the largest amount. Once you’ve paid off your debt, you can re-adjust the framework and commit more money toward your savings goals or investing. 

Two-income households

How much of your paycheck should you save versus your partner or second-income earner? You can adjust your approach to the 50/30/20 budgeting rule to accommodate dual-income households. If both parties are earning roughly the same income, one earner could cover your household’s basic, necessary expenses in the 50% needs category. The second earner could commit their income to wants and savings/investing. This won’t work for all financial situations, but it can be a helpful framework for applying the 50/30/20 budgeting rule when sharing expenses. 

What to do with your savings

How you use your savings will depend on numerous factors. Emergency savings, a house fund, saving for education, and saving for your children or other family members are all common savings goals. There is no one-size-fits-all savings amount, and you should always factor in the stability of your employment situation and your lifestyle when setting your savings goals to ensure they’re realistic and achievable.

Build an emergency fund

First things first, focus on your emergency fund. The size of your emergency fund can depend on your current income, your existing savings and investments, how many dependents you have, and more. It’s recommended that you maintain an emergency fund with up to six months’ worth of expenses. That way, if you suddenly lose your job, your car breaks down, or you have a medical emergency, you don’t have to panic or go into debt to get by. 

An emergency fund is different from a rainy day fund; the latter is usually smaller and designed to cover more predictable, lower-cost things like car maintenance and your dog’s yearly vet visit. 

Set savings goals

Of course, determining how much of your paycheck you should save is only the first step; you still have to determine what you’re saving for. You’ll likely have short-term, mid-term, and long-term savings goals. Short-term goals are generally achieved in 12 months or less and might include things like planting a garden in the spring, saving for braces, upgrading your computer, taking a vacation, or saving for holiday gifts. Mid-term goals are a little further out: usually about one to three years. This can be something like putting a down payment on a house, moving to a different city, getting a new car, having or adopting a child, or having a wedding. Creating a sinking fund is best for these types of savings goals.

Remember, what you see as a short- or mid-term goal will depend on your income, other expenses, and timeline. Whatever the case, having specific saving goals can motivate you to stick with your plan and put that money aside instead of spending it.  

Invest for the long term

Long-term financial goals typically focus on retirement planning, wealth building, and financial freedom. These savings goals take a longer time to achieve but are well worth the work. They often look like contributing to a retirement account, building a diversified investment portfolio focused on long-term gains, or investing in an account for your child’s education. Often, people work toward these long-term goals by investing rather than keeping money in the bank, where inflation may outpace the interest earned. 

Where to keep your savings

While you technically can save your money in any account, there are some account types that amplify your savings because they earn interest or returns. When selecting what account to put your savings in, you’ll want to think about potential returns, how likely you’ll need to access that money, and how long you want it to stay in the account. 

• High-yield savings account: A high-yield savings account is best for short- to mid-term savings. These accounts act much like traditional savings accounts but pay more in interest. Like a traditional savings account, you may be limited to six monthly withdrawals, but your money can be accessed quickly if needed. A high-yield savings account can provide competitive returns, but remember that most interest rates are variable, so they could drop at any time.
• Certificates of Deposit (CDs): A certificate of deposit, or CD, is essentially a loan you extend to the bank. Your deposit earns a fixed interest rate for a set period of time. You’ll generally get higher interest than a traditional savings account, but you often can’t access that money without paying a penalty before the end date. The term length can vary from a few months to a few years. A CD can be a great place to store money you’re confident you won’t need to access before the term is up.  
• Retirement accounts: Retirement accounts like a 401k, IRA, or Roth IRA are for your long-term investments. These tax-advantaged investment accounts have deposit and withdrawal limits; typically, you can’t cash out your investments before age 59 ½ without incurring substantial penalties. You only want to invest money in these accounts that you won’t need to access before retirement. 
• Brokerage accounts: A brokerage account is a taxable investment account you use to buy and sell securities. Unlike a retirement account, you can invest as much money as you want and withdraw that money before retirement. A brokerage account can be a good vessel for mid- and long-term goals but comes with risks, as you can lose the money you invested. These accounts also aren’t tax-advantaged, so you’ll pay taxes if your investments receive dividend or capital gains payments, or if you sell securities that have gone up in value resulting in an investment gain.

Ready to start saving?

Once you’ve created a budget, you should be able to confidently decide how much of your paycheck you should save based on your personal circumstances. But your budgeting and savings journey isn’t over. The amount you save will likely shift as your income, expenses, and savings goals change. Budgeting and saving for young adults will likely look different from the approach that works for people in their 30s, 40s, and beyond. You can adjust your strategy to reflect your ever-evolving financial landscape by periodically asking “How much of your paycheck should you save?” with a fresh perspective.

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Like any sort of job, side hustles come in all kinds of shapes and sizes, potential incomes, costs, and time investments. Some are quick, low-effort, and tend to generate less money. Others can be built into real money-makers, but require some up-front investment or additional time and effort. 

In this article we’ll cover:

• What a side hustle is
• Types of side hustles
• Side hustle ideas
• How a side hustle can help you grow your wealth
• Tax implications of side hustles

What is a side hustle?

A side hustle is work that provides supplementary income in addition to the money earned through one’s main job. Essentially, a side hustle is a second (or third, or fourth) job. Side hustles can include anything from gig work, like driving for Uber or Amazon Flex, to flipping houses or furniture, to freelancing using your professional skills. 

Many people with side hustles use the internet, apps, or their professional networks to find opportunities; some go so far as to build small businesses around their side work. The amount of work and potential income earned through your side hustle will depend on what type of work you pursue and how much time you can devote to it.

What is a “legitimate” side hustle? 

A legitimate side hustle is one where you provide the product or service required and can trust that you’ll get paid what you expect. There are many scammers on the internet, though, and it isn’t surprising that they sometimes target those looking for side hustles. Keep an eye out and stay safe while looking for side hustles to protect your time, income, and personal information. If an opportunity seems too good to be true, it likely is. Here are a few tips for checking the legitimacy of a money-making opportunity:

• Screen potential freelance or contract work clients to ensure they’re legitimate businesses. Get a contract in place if possible. 
• Look at reviews and web forums for any apps or websites you’re using to find work. 
• Never pay a fee to apply to work for an individual or company.
• Beware of opportunities that require you to purchase products upfront to resell to others or require you to invest money in training materials. Multi-level marketing schemes (MLMs) often require this, and many people lose money or go into debt with these types of endeavors. 
• Guard your personal information. Review a company’s website, check the Better Business Bureau, and talk to someone directly before providing anyone with your personal information.

Types of side hustles

Side hustles aren’t one-size-fits-all. You can choose from different types that require varying levels of time and effort, upfront costs, and skill requirements. 

Here are five broad categories to consider:

• Freelance or contract work: This work requires an existing level of skill, and many people use the professional skills they rely on for their primary job to pick up freelance work in the same industry. 
• Gig economy jobs: Gigs are temporary and part-time positions in which independent contractors fulfill some services provided by a company, such as making deliveries for a food-delivery service.
• Online side hustles: Online side hustles are generally not jobs so much as tasks. Online roles are generally quick, easy, and attainable, but relatively low-paying.
• Small businesses: Some hustlers turn their side work into small businesses, whether that’s selling a skill or a product. These roles are often more time- and cost-intensive, but consist of building a brand and potentially turning their small business into their main job.
• Passive income: Passive income can come in several different forms but generally consists of investing in something or renting something out, resulting in repeating income that requires little ongoing effort. There may be a fair amount of work up-front, but the goal is to earn a regular income once set up.

Side hustles ideas for 2024

Based on the types of sides hustles we covered, here 29 hustles to consider broken into the following categories:

• Freelance/contract side hustle ideas
• Gig economy side hustle ideas
• Online side hustle ideas
• Small business side hustle ideas
• Passive income side hustle ideas

Freelance/contract side hustle ideas

Generally, these side hustles are hourly or project-based and require some level of skill or expertise. Freelance and contract work can be found through numerous apps like Fiverr, Upwork, Steady App, and many more. You might also find these opportunities through your network, family, and friends, or by building a public or industry reputation. 

Freelance and contract work require an investment in your own expertise, and your income generally depends on the amount of time you put into the work and your experience level. When pursuing these side hustles, make sure the work you do doesn’t breach a non-compete agreement you might have with your main employer. Some examples of freelance work include: 

• Handywork/landscaping
• Writing
• Graphic design
• Bookkeeping
• Editing
• Website development
• Social media
• Tutoring
• Administrative work

Gig economy side hustle ideas

Gig work is a specific type of contract work based on flexible, temporary, or freelance jobs generally managed online or through an app. In the gig economy, everyone is an independent contractor, so people generally don’t have regular schedules or get benefits from employers. Instead, you get the flexibility to work when you want to. 

Pet sitting or dog walking

If you’re an animal lover, you can find opportunities to take care of pets for some extra cash. The amount of time and potential income is dependent on how much work you take on, where you live, and the reputation you build. 

House sitting 

If you like to travel, house sitting might be a good fit for you. Using websites dedicated to sourcing house sitters, you can find opportunities to make some money in exchange for staying at someone’s home, watering their plants, grabbing their mail, and other domestic tasks. House sitting comes with the side benefit of helping with your travel budget since your accommodations are free. You might also find opportunities where you live if you’re interested in this kind of work but don’t want to travel.

Ridesharing

Rideshare driving is a popular side hustle these days. You’ll need to have a relatively new car in good condition, as well as a good driving record. Some people enjoy the chance to travel around the city and meet new people, as well as the chance to earn more money through tips. 

Delivering food through apps

You’ll need reliable transportation to pick up gigs delivering food; most people rely on a car, but some deliver by bike. You’ll usually earn money for each delivery in the form of payment from the company and tips from customers.

Delivering packages

Amazon and other businesses hire flex drivers in hour blocks to deliver packages. If you have three to five hours free, you can sign up for a flex block, pick up packages, and deliver them in your area. 

Online side hustle ideas

Unlike most gig work, online side hustles can usually be done from home. These jobs often require a lower time investment, with a wide range of potential incomes. 

Participating in online surveys

Market research companies often pay participants to share their thoughts, opinions, and experiences. With these websites, you’ll take surveys in exchange for a small amount of money. The more surveys you take, the higher your income. Watch out for potential scams, such as websites that require payment to join their panel of participants; check reviews before signing up to be sure the website is reputable. 

Participating in user testing

You can also test apps, websites, or platforms. Testers are often asked to click through a mockup of a website or sort cards so web developers can learn more about user behavior. These can earn more income than surveys on a per-task basis, but generally require a higher time investment. 

Transcribing videos, calls, or recordings

Some sites hire transcribers to turn audio recordings into text. Those who can transcribe quickly can earn a fair amount of money this way, as you’re often paid per audio minute or per file.

Virtual assistant

Many businesses need some help but don’t need a full-time executive assistant. That’s where a virtual assistant comes in. Often managed completely online, a virtual assistant can perform executive assistant-type tasks contractually. 

Starting a podcast, social media, or YouTube channel

Are you an expert on something, or do you have something you’re passionate about? Viral social media content comes in many forms, and if you can build an audience and you’re good at it, you may be able to generate income from a podcast or social media. It can take time to build a large enough audience to monetize your endeavor, but the effort can also be fun and rewarding in its own right. 

Selling used clothes or items

Those who are good at thrifting or garage sales can often find items at a relatively low price and resell them for a higher price via online marketplaces. The amount of income you can earn varies widely, but you could do well if you’re knowledgeable about niche items that have a high value on the secondary market. It’s possible to get started without investing too much money upfront if you can find good deals on used items; you could even start by selling items you own but no longer want. 

Small business side hustle ideas

A small business is your opportunity to create a brand and sell something you’re good at, whether that’s a product or a service. These are often high-effort, higher-potential income opportunities. 

Selling crafts or art

Do you draw, paint, work with wood, or otherwise create a physical product? These products can be sold at fairs, markets, shows, and through online marketplaces to make some money. Work like this requires some up-front budgeting for materials, websites, booths, or other business investments, as well as the time required to create things to sell. But building a brand can turn your side hustle into your full-time hustle. 

Refurbishing furniture

Another small business opportunity is refurbishing and reselling furniture. With the right supplies, you can update or fix up old or damaged furniture found online, through garage sales, or even on the street for some extra income. This takes an investment in skills and supplies, as well as the time to dig up good finds you can restore. 

Creating and selling art

Art doesn’t have to be physical to sell. If you have skills with platforms like Photoshop, you can create original digital art you can sell online. Because it doesn’t require physical supplies, this can be less expensive than physical art. Many people take commissions to increase opportunities to make money.   

Coaching or teaching classes

If you have expertise in something, you can share your expertise by offering online classes, either through your own website or an online platform. This avenue can also provide repeatable income if you sell the same recorded course many times.

Passive income side hustle ideas

Passive income is different than active income. Broadly, this is income that you can generate without requiring daily participation. While passive income usually requires an initial investment, you may be able to earn dividends for years from that investment. Check out our full breakdown of passive income opportunities. 

Renting

Whether you’re renting a spare room in your home or you’ve invested in a rental property, you can generate regular and predictable extra income monthly. Investing in rental properties will often require a hefty investment, so spend time researching options and budgeting before making such a significant decision. 

Renting out your car

All this requires is having a car and not needing it while it’s being rented out. There are platforms dedicated to these types of rentals and a significant time investment isn’t usually involved. 

Affiliate marketing

Affiliate marketing requires an audience, but once you have one, you can promote content through blogs, videos, or social media and collect ongoing income from your audience’s purchases.

Investing in bonds

While this isn’t exactly a side hustle, it’s an opportunity for passive income that some people overlook. Investing in bonds is a relatively low-risk way to use the savings you have to get a guaranteed return, and there are long and short-term bonds available to fit your timeline. 

Opening a high-yield savings account or CD

While they also aren’t side hustles, both high-yield savings accounts and CDs are ways you can use your existing savings to make more money. Both of these accounts offer short-term opportunities to earn interest for storing your cash.

How side hustles can help your financial health

What you do with the money you make from your side hustle is dependent on your unique financial journey. It can help you balance your budget, put money aside toward retirement, or save up to buy something you really want. Relying on side hustles to pay your monthly bills can be risky because they often don’t guarantee consistent income, but a side hustle can help you: 

• Build an emergency fund
• Save more toward your goals
• Pay down debt
• Invest in the stock market
• Build your retirement account
• Treat yourself

Tax implications of side hustles

Remember, any income you make has implications for your taxes. Many first-time contractors and side hustlers find themselves shocked when they realize at the end of the year that they have to pay taxes on that income. Unlike money from your regular paycheck, taxes aren’t withheld from the money you make through a side hustle. You’ll have to pay state and federal income tax, and may also be responsible for self-employment taxes.  It’s important to research what your taxes are expected to look like and be prepared. You may be able to defer taxes on self-employment income with an IRA. 

How to choose the best side hustle for you

Here are some questions to consider when selecting the best side hustle for your unique situation.  

• What existing skills and experience do you have?
• How much time can you put into this work?
• How much income do you need to make from a side hustle? 
• What resources do you already have available?
• What opportunities would bring you the most joy?

Remember that side hustles don’t have to be huge commitments. You can try something to see if you like it before investing a lot of money or time.

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While the exact parameters that distinguish an economic downturn from a true recession are debatable, the National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.” The typical rule of thumb for determining whether a period constitutes a recession is whether it includes two or more consecutive quarters of decline in a country’s gross domestic product (GDP). Often, these periods aren’t officially labeled as recessions by economists until they are already well underway or have ended entirely. It’s important to remember that recessions are natural and temporary phases in the business cycle, and though they may come with hardships, they are typically succeeded by periods of economic growth.

In this article, we’ll cover:

• What happens in a recession
• Downturns vs. recessions vs. depressions
• What causes recessions
• Recessions and the business cycle
• Signs of a recession
• How a recession may affect you
• How to invest in the face of a recession

What happens in a recession

Recessions are complex events that can be triggered by various factors, from financial crises to external shocks. While each recession has distinct characteristics and causes, varying in length and severity, a few trends are common across all of them.

• GDP falls: GDP, which measures the total value of goods and services produced in a country, typically drops during a recession, indicating a weakening of the nation’s overall economic health.
• Economic activity declines: Businesses might reduce production due to decreased demand, leading to a slowdown in various sectors of the economy.
• Unemployment rate rises: As companies cut back on production or even shut down, job losses become more prevalent, leaving a higher percentage of the population without employment.
• Interest rates may decrease: The Federal Reserve might choose to lower interest rates in an effort to boost economic activity.
• Consumer spending shrinks: Uncertainty and financial concerns during a recession often lead consumers to cut back on their expenditures, further slowing down the economy.

Economic downturns vs. recessions vs. depressions 

Economic downturns, recessions, and depressions are all periods of economic contraction. Ultimately, their differences lie in their duration, intensity, and impact on the broader economy.

• Economic downturns: These are short-term declines in economic activity, often accompanied by bear markets. While they can lead to recessions, it’s possible for the economy to recover before that happens. The U.S. has experienced a number of downturns throughout history, with bear markets lasting an average of about 9.5 months, though many are much shorter. 
• Recessions: Going into a recession means that an economic downturn extends into a more prolonged and pronounced drop in economic activity. Since 1980, the U.S. has faced five recessions of varying durations, with the shortest lasting just six months and the longest extending to 18 months. On average, U.S. recessions have lasted about 11 months.
• Depressions: Depressions are the most extended and severe economic contractions. The U.S. has experienced only one depression, known as The Great Depression, which began with a profound stock market crash in 1929 and lasted for about a decade. This period was marked by extreme unemployment, a significant drop in consumer spending, and widespread bank failures.

Examples of past recessions

Each recession in the U.S. has been unique in its cause, duration, and impact on the global economy. Three significant recessions identified by the NBER in the recent past have left a lasting mark on the country’s economic landscape.

• Dot-Com Recession: Occurring between March and November 2001, this seven-month-long recession was a result of the bursting of the dot-com bubble of the 1990s. The overvaluation of tech companies led to a sharp stock market decline, impacting the broader economy.
• The Great Recession: Spanning from December 2007 to June 2009, the Great Recession was primarily caused by the subprime mortgage crisis, leading to significant job losses and a global banking crisis. Lasting 18 months, it’s the longest recession the U.S. has experienced since World War II.
• COVID-19 Recession: Triggered in early 2020 by the global outbreak of the COVID-19 pandemic, this recession saw a sharp decline in economic activity due to lockdowns, travel bans, and business closures. While its exact duration is still debated, the most severe stages occurred between February and April 2020.

What causes recessions

No two recessions are identical. They often arise from a unique combination of factors that work together to turn a mild economic downturn into a pronounced economic contraction. A few factors often contribute to the onset of a recession. 

• Sudden economic shocks: Unexpected events that disrupt the normal flow of the economic cycle,  like natural disasters, terrorist attacks, or health crises, can shake consumer and business confidence, triggering a reduction in spending and investment.
• Excessive, widespread debt: When households, businesses, or governments take on too much debt, they may need to cut back on spending in order to pay it off, leading to a significant dip in overall economic activity.
• Asset bubbles: Bubbles occur when the prices of assets, like real estate or stocks, soar far above their fundamental value. Asset bubbles often arise in a specific industry or sector. When these bubbles inevitably burst, those who invested heavily can face significant losses, companies go out of business, and a ripple effect may impact other sectors of the economy as well, leading to an overall economic slowdown.
• Excessive inflation: During periods of high inflation, prices of goods and services rise too quickly, eroding consumer purchasing power. The Federal Reserve may then choose to raise interest rates in an effort to curb inflation, which can result in reduced borrowing and spending.
• Runaway deflation: The opposite of inflation, deflation is a prolonged drop in prices. While it might seem like a good thing, deflation can lead to reduced consumer spending as people wait for prices to fall further, causing a vicious cycle of economic contraction.

How recessions fit into the business cycle

The business cycle is a natural ebb and flow of economic activity, characterized by periods of growth and decline. Recessions are a pronounced form of natural contractions, representing a significant dip in the cycle. The NBER plays a pivotal role in determining the start and end dates of U.S. recessions by breaking the business cycle into four primary phases:

• Expansion: Marked by increasing economic activity, the expansion phase is a period of economic growth and prosperity. This is an ideal economic stage for business growth, often featuring rising employment rates and bolstered consumer confidence. As demand increases, businesses raise prices, causing inflation.
• Peak: The peak of the business cycle is the zenith of the expansion phase, where economic activity reaches its maximum, right before starting to fall off. This phase is characterized by high levels of production, employment, and the highest prices, with no room for further expansion.
• Contraction: Following a peak, the economy starts to slow down. This period sees a decline in GDP, employment, and other economic indicators. If this contraction is prolonged and severe, it can lead to a recession.
• Trough: The trough is the lowest point of the contraction phase, when economic activity bottoms out before starting to rise again. From here, the business cycle moves back into the expansion phase, marking the beginning of economic recovery.

Signs of an impending recession

While it’s impossible to predict recessions with absolute certainty, economists and financial experts often turn to specific indicators that hint at economic turbulence ahead. 

• Inverted yield curve: Typically, long-term bonds have a higher yield compared to short-term bonds. But when short-term bonds yield more than long-term ones, it’s called an inverted yield curve. Historically, this inversion has preceded recessions, as it indicates a lack of economic confidence.
• Declining consumer confidence: When consumers are pessimistic about the future of the economy, they tend to spend less and save more. A sustained drop in consumer confidence can lead to an economic contraction.
• Increasing unemployment: A rising unemployment rate can be a sign that businesses are cutting back on staff due to decreased demand or revenue. Persistent high unemployment can contribute to reduced consumer spending, which may exacerbate an economic slowdown.
• Stock market drops: While stock markets can be volatile regardless of the larger economic landscape, a prolonged and significant drop in stock prices overall can sometimes precede a recession and might be a sign of continued decline.

How a recession may affect you (and how you can prepare)

A recession affects the average person in a variety of ways. You might feel a financial pinch, as job security becomes uncertain and daily expenses seem to loom larger. While it’s natural to be concerned, there are proactive steps you can take to navigate challenging times and prepare for an impending recession.

• Build an emergency fund: An emergency fund acts as your financial safety net, ensuring you have funds to cover unexpected expenses or income loss. Especially during uncertain times, having three to six months’ worth of expenses can provide peace of mind and financial stability. 
• Pay off debts: Reducing debt, especially high-interest credit card debt, can free up income and reduce stress on your personal finances. By tackling your debt, you’re not only improving your financial health, but also making yourself less vulnerable during an economic downturn. 
• Start saving money: Plan for what a recession would do to your current budget and savings goals and take action ahead of time. By cutting down on expenses and setting aside a portion of your income regularly, you’re building a buffer that can be invaluable during tough times.

How to invest if you’re worried about a recession

When economic clouds gather, it’s natural to feel uneasy about your investments. Remember that market fluctuations are a part of the investment journey, and before making any hasty decisions, you might want to consult with a financial advisor who can provide tailored advice for your situation. Instead of panicking when the stock market dips, consider these strategies to safeguard, and possibly even grow, your portfolio during a recession.

• Ride out the downturn with long-term investing: Historically, markets have shown resilience over extended periods. Focusing on long-term investing may allow you to weather short-term volatility and potentially benefit from the average stock market return over time.
• Seek out “recession-proof” stocks and funds: Some sectors tend to be more resilient during economic downturns. Identifying and investing in stocks that tend to hold value in a recession might help shield your portfolio against market turbulence. 
• Consider defensive stocks for your portfolio: Defensive stocks are shares in companies that provide essential goods and services, like utilities or consumer staples. Because of their relatively stable demand, adding them to your portfolio may reduce your vulnerability in the face of economic flux.
• Capitalize on inflation before it drops: Some securities can actually benefit from inflation. Investing in things like Treasury Inflation-Protected Securities (TIPS), I-bonds, and value stocks when inflation is rising before a recession might offer a hedge against decreasing inflation rates later. 
• Evaluate short-term investment options: If you’re apprehensive about locking your money into long-term investments during uncertain times, consider short-term, lower-risk options. Instruments with fixed interest rates, such as CDs and T-bills, can be a way to secure higher interest rates before they potentially drop in a recession. 
• Diversify your portfolio: Spreading your investments across various asset classes and economic sectors can reduce risk. Especially during a recession, a diversified portfolio can help mitigate losses and position you for growth when the economy recovers.

Holding steady in the face of a recession

Economic downturns and recessions are inherent phases of the business cycle. Though they present challenges, remember that they’re followed by seasons of growth and rejuvenation. When you understand what a recession is, you’ll be more prepared to anticipate downturns and prepare.

As an investor, maintaining a clear strategy, staying informed, and resisting the urge to make impulsive decisions can help you pave the way for long-term success. With a good grasp of the cyclical nature of the economy, you can navigate the turbulence of recessions with more confidence.

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If you’re unprepared for an economic downturn, you’re likely to experience consequences with potentially negative long-term financial impacts. But with some proactive readiness, you can avoid the financial vulnerabilities associated with job loss, financial instability, and other recession-driven hardships. These eight steps will help you make a plan to ride out an economic decline with confidence.

In this article, we’ll cover:

1. Understanding your finances
2. Creating a budget to stick to
3. Building your emergency fund
4. Getting rid of high-interest debt
5. Living below your means
6. Avoiding new financial commitments
7. Securing your career
8. Why you should continue to invest

1. Review your finances

First, evaluate your current situation. Compile a comprehensive overview that includes income, expenses, liabilities, and assets.

• Income: Total up your income from all sources, including your salary and any additional money you bring in from things like side gigs, child-support payments, and government benefits programs.
• Expenses: List all your monthly expenses and how much you spend on them. Categorize them into two groups: necessities like rent/mortgage, utilities, and groceries, and discretionary spending like entertainment, dining out, and treats.  
• Debt: Gather the current balances and interest rates of all your debts. Be sure to include every kind of debt, such as credit cards, auto loans, personal loans, medical debt, mortgages, and student loans. 
• Savings and investments: Add up the balance in all your savings and investment accounts; don’t forget to include any retirement accounts you have.  

This information allows you to lay out a financial plan to guide you through a potential recession, as well as look ahead to long-term goals. Consider creating a visual representation like a spreadsheet or financial statement that allows you to assess your situation at a glance. 

Having all of this information in one place can keep you from making panicked financial decisions in the face of economic uncertainty. Determine where you could make cutbacks if needed now, instead of scrambling to make ends meet if your income decreases or disappears later. 

2. Create and stick to a budget

Making a budget is a fundamental step in planning how to prepare for a recession, particularly if you’re new to managing your personal finances. When uncertainty looms, there’s no better time to track and adjust your spending habits. Understanding your cash flow today and where you could potentially cut back tomorrow is vital, especially if your job is recession-sensitive. 

Start building your recession-friendly budget by subtracting all your monthly expenses from your income; this will tell you whether you’re living within your means or need to trim expenses. With that information in hand, you can establish monthly spending limits for each expense category and set savings goals. This is the time to decide if you want to cut down on your spending in certain areas so you can bolster your emergency fund so you have more of a cushion in case of recession. 

You may want to use the 50-30-20 budget guideline to simplify the process. Assign 50% of your income to essential living expenses like housing, food, utilities, and debt. Devote 30% to things you’d like to spend money on but could ultimately do without, and 20% to savings goals, your emergency fund, and long-term investments. 

3. Build your emergency fund

Financial curveballs like unexpected expenses and job loss could have a bigger impact during an economic downturn. A solid emergency fund provides a safety net you can use to handle those crises without going into credit card debt or wiping out your other savings.

Building an emergency fund can be especially important during a recession, when economic decline can undermine job stability. The rule of thumb is to save up three to six months’ worth of living expenses so you can cover your bills in case your pay is reduced or you get laid off. While you might be able to receive unemployment benefits if you lose your job, they may not cover all your essential expenses or float you for as long as you need. Unemployment usually replaces only half your income and ends after 26 weeks in most states, so chances are you’ll need the extra money in your emergency fund to get by until you find a new job. 

While three to six months of living expenses may seem like a lot to save up, you can make it feel less daunting by breaking that larger goal into smaller ones based on priorities. You might start by saving enough to pay rent for three months, then setting aside enough for your essential bills, and so on. Just getting started is what matters most.

If you want to grow your emergency fund faster, consider cutting some discretionary expenses and putting that money toward your emergency savings. If you get a bonus, tax refund, or other windfall, add it to this savings goal. Keeping your fund in a high-yield savings account can also help amplify your savings by earning interest, as well as ensuring your money is easy to access when you need it.

4. Prioritize paying off high-interest debt

High-interest debt is expensive, and it can keep you stuck in a rut of never-ending monthly payments that strain your budget and undermine your savings goals. Credit cards, personal loans, unsecured lines of credit, and payday loans are generally classified as “bad debt” because they tend to have high interest rates and steep late fees; the interest rates are also variable, meaning they could skyrocket at the lender’s discretion. Bad debt can even negatively affect your credit score if you’re late on a single payment. 

If you’re worried about how to prepare for a recession, getting out of debt as soon as possible may be high on your priority list. And paying off credit card debt might be extra important: the average credit card rate in the U.S. is 27.80% as of November 2023. Even if you currently have a low rate, credit card issuers often hike their rates when the Federal Reserve raises interest rates during periods of inflation. 

Consider attacking your high-interest debt before recession strikes by using the avalanche method. This debt-repayment strategy prioritizes paying off your highest-interest debts first in order to reduce the overall amount you spend on interest over time. As you pay off each debt, the extra money rolls down to the next, and the impact becomes greater over time. Here’s how works:

1. Organize your debts by interest rate, highest to lowest.
2. Make the minimum monthly payments on all of your debts, except for the highest-interest one.
3. Every month, pay extra on your highest-interest debt. 
4. When the first debt is paid off, put the amount you’d been paying on it toward the debt with the next-highest interest rate. 
5. Repeat the process until all of your debts are paid off.  

Here’s an example of the avalanche method in action. Imagine you have the following debts and can afford to put an extra $110 a month, over and above the minimum payments, toward paying them off.

After eight months, the credit card would be paid off, so you’d start paying an extra $150 on the personal loan; $150 is the total of the credit card’s minimum payment and the extra avalanche payment.

Once the personal loan is paid off, you’d put an extra $190 toward the unsecured line of credit until all your debts are satisfied.

5. Spend less and stay frugal

While you don’t need to deprive yourself of every little luxury, it does help to adopt a frugal mindset while preparing for a potential recession. Reducing discretionary expenses can help you put more money toward your emergency savings. 

When looking for ways to save money, use the financial plan and budget you’ve already created to distinguish between needs and non-essential wants, then make some choices in the name of frugality. Dining, entertainment, and impulse buying are some of the most common culprits in a ballooning budget, so many people find that reducing these expenses can have a big impact.

• Limit dining out: Meal planning and cooking at home takes more time than dining out or ordering in, but it saves money on food costs in the long run. You might be surprised at how much you really spend in this category. If your parent ever said, “We have food at home” when you wanted to stop at the drive-through, you might want to adopt that adage yourself.
• Reduce entertainment expenses: Spending on events, travel, and hobbies can add up quickly, but you can have fun without breaking the bank. Keep an eye out for low-cost entertainment alternatives like home streaming services, free community events, or hobbies that don’t require expensive supplies. 
• Suspend subscription services: There are a vast number of options for entertainment delivered right to your home: movie and music streaming services, mobile apps and games, monthly product deliveries, and many more. In many cases people rarely use most of the services they subscribe to. Review all of your subscriptions and consider canceling or temporarily suspending those that don’t truly feel worth the money.
• Curb retail therapy: Everyone wants a little treat from time to time, but impulse buys and regular retail therapy can take a toll on your budget. Remove the temptation to buy on impulse by deleting your payment information from websites that store it, and carry only cash when you’re shopping in person so you can’t spend more than you have in your pocket. Institute a 24-hour rule before you buy something that’s not in your budget; you might find that the urge to spend fades if you wait a day. 

6. Avoid new, big financial commitments

When preparing for a recession, signing up for new expenses puts you on the hook for things you might not be able to afford if your cash flow starts to dry up. Avoid making new financial commitments, especially those with high monthly payments or interest rates. Forgo taking on new debt, stick with your roommates or your parents for a little while longer, and say no to pouring money into risky new ventures. 

• Mortgages: The beginning of a recession often sees rising interest rates, so the timing isn’t great for locking yourself into a fixed-rate mortgage. Instead of buying real estate, save for a downpayment so you can buy that house when conditions are more favorable. 
• Car loans: Getting more miles out of your current car instead of buying a new one keeps you from signing up for payments you may not be able to afford if recession hits. Funnel the money you’d spend on those car payments into your emergency fund or a sinking fund you can use to repair your existing vehicle. 
• Large personal loans: Going into debt should be a last resort when preparing for a recession, and that includes borrowing significant sums of money for non-essential purposes. If you need a personal loan to buy something, it may be wiser to put that purchase on hold and save up for it instead so you’re not committed to monthly payments and interest.
• Business ventures: Starting a new business is a risk under any circumstances, but even more so during a recession. An economic downturn is likely to significantly curb consumer spending, leaving you without the customers and cash flow you need to succeed. Use this time to shore up your business plan and save so you can launch your venture when economic indicators are more favorable.

7. Cushion your career

Financial preparedness includes both enhancing your job security and focusing on career development, just in case you need to make an unexpected change. When you make yourself indispensable in your current position, you might be in a better position to weather potential layoffs. But if you do wind up in the market for a new job, ongoing professional development efforts could help you get noticed and hired faster. In either case, it’s important to know your industry, stay up to date with trends, learn new skills, and network before a recession hits. Consider taking these steps to stay ahead:

1. Diversify your skill set: Identify and acquire skills that are in demand across various industries. Diversifying your skill set can make you more adaptable during economic downturns, especially if your specific industry takes a harder hit.
2. Update your resume: Job searching can be stressful, especially when you haven’t updated your resume in a while. Give yourself some peace of mind and polish it up now. You’ll be more prepared to make a move, whether your company decides to downsize or an unexpected job opportunity pops up.
3. Network, network, network: Landing a job often comes down to knowing the right people. Building a strong network of professional relationships can lead to new opportunities or fortify your job security in the midst of a recession. Stay in touch with colleagues on LinkedIn, join professional organizations, and attend industry conferences to grow your network.
4. Stay informed about your industry: It pays to know what’s going on. Don’t ignore company news and industry reports. Stay informed about the health of your industry overall and monitor economic indicators so recession doesn’t take you by surprise. 
5. Deliver your best work: It may be difficult to stay positive and productive at work with economic uncertainty on the horizon. However, consistently delivering high-quality work, being flexible with company changes, and projecting optimism can enhance your professional reputation with your colleagues and boss. It can also help you obtain the glowing recommendation you need to snag your next job.

8. Continue to invest what you can

Perhaps the most important thing for investors to remember when recession looms is this: don’t panic. Even when the stock market is in a slump, don’t abandon your investing plans. While it may be stressful to see the value of your portfolio drop, remember that economic downturns don’t last nearly as long as periods of economic growth. A long-term investment strategy is intended to help you ride out market volatility and natural fluctuations in the business cycle, including a recession. 

As long as your spending is under control and your emergency fund is solid, continuing to invest now can help you work toward retirement and other far-off goals. Keep making your regular contributions to 401(k) and IRA. If you want to make adjustments to the holdings in your brokerage account, you might consider defensive stocks and other investments that may perform well in a recession to further diversify your portfolio. You might also want to talk with a financial advisor about the options that best align with your goals and risk profile. 

When recession looms, take the long view

Determining how to prepare for a recession involves taking stock of where you are now as well as your long-term goals. When you’re uncertain about the immediate future, it can help to get a firm handle on your personal finances to build a solid budget, emergency fund, and plan for paying off debt. 

At the same time, remind yourself that economic recessions are temporary and recovery will follow. Staying invested throughout the ups and downs of the market cycle is key to reaching long-term investing success. 

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Financial goals are your personal saving, spending, and investing targets. They might be things you want to achieve in the short term, a bit further down the road, or even far into the future. Goals help you determine how to allocate your income among expenses, how much to save and invest, and what success looks like. Your financial goals will be as unique as you are. Determining them can help you understand and achieve the financial future you want.

In this article, we’ll discuss:

• How to determine financial goals 
• Types of financial goals
• How to set successful financial goals

How to determine your financial goals 

How you build your money strategy is largely driven by your financial goals. When you know what you’re working toward, you can more easily make financial decisions that support your values and ambitions. Most people have multiple short, mid, and long-term goals at any given time. 

The financial goals you set will be driven by things like your lifestyle, plans for the future, where you live, family structure, and so on. They’re also contingent on your financial situation, including income, expenses, and debt. Rather than comparing yourself to other people, focus on working toward achievements that are realistic and meaningful for you. 

Keep in mind that your goals will likely shift over your lifetime as your circumstances change. For example, changes in income, family dynamics, health, and even the economy can directly impact your goals. 

The 3 types of financial goals

You can break your goals into three broad categories based on timeline, and you might take a different approach for goals in each category differently.

• Short-term financial goals: These are smaller financial targets that can be reached within roughly a year. In addition to saving over time, many people fund these goals with a one-time windfall like a tax return or bonus. 
  
• Mid-term financial goals: Mid-term goals are typically larger goals that will take one to five years to achieve. Having a longer timeline allows you to put your savings into an interest-bearing account or short-term investment to help your money grow. 
  
• Long-term financial goals: These goals will take more than five years to achieve, are higher financial targets, and will require a long-term commitment to saving and investing on a regular basis.

Examples of financial goals

So, what are the financial goals you should set? The answer to that question is unique to every individual, and it’s based on both practical considerations like age and income as well as personal hopes and desires. For most people, it makes sense to set a couple of short, mid, and long-term goals at the beginning of their financial planning journey. Then, you can check in on your goals periodically to make sure they still make sense for your overall financial plan. The examples of financial goals below can help you start thinking about the goals that make sense for your life. 

Why financial goals matter

Delayed gratification can make saving and investing hard. You have to give up spending in the short term for gratification down the road. That’s why setting goals is so important. It gives you something to work toward that makes resisting the urge to spend your money worth it. Financial goals provide purpose and energize your money moves so you can work toward the future of your dreams.

Goals also make your financial planning concrete. You’re not just saving miscellaneous sums of money for a vague future use. You have a savings plan in place to achieve something that will bring you joy or comfort. And you know exactly how much you’re trying to save.

How to set financial goals you can stick to

Your financial goals need to be realistic and motivating in order to work. So you must consider several factors when setting your goals, including your current income, expenses, and debts, as well as the life you want to live. Here are six tips for setting financial goals you can achieve. 

1. Make your goals specific and measurable

Start by making a list of goals, categorized into short, mid, and long-term. Determine the required amount and ideal timeline for each goal. The more specific you are, the more effective your financial planning can be. For example, if you want to replace your old car, research the kinds of vehicles you might want to buy and how much they cost, and consider when you’ll need to make the purchase based on how much life is left in your current car.

2. Build savings into your budget

Having a budget not only helps you manage your day-to-day spending but also enables you to plan for the future. Once you understand how much money you have left over at the end of the month after core expenses and bills, you can assign a chunk of every paycheck to each goal. You may be unable to save for everything at once, so you’ll want to prioritize. Start with your financial security goals, like an emergency fund and paying down debt, and work out from there. Once you feel financially stable, you can pivot to saving for more fun milestones alongside your very long-term goals, like retirement.

3. Establish an emergency fund

Building an emergency fund is often one of the first financial goals people work toward. That’s because having the money you need to cover an emergency can protect your other goals. An emergency fund exists so that unexpected expenses like a leaky water heater, car repairs, or medical bills don’t have to come out of your house fund or long-term savings. Experts recommend having three to six month’s worth of living expenses in your emergency fund. Once you hit that mark, you might want to focus your savings efforts on other goals, but be sure to replenish your emergency fund any time you have to spend some of it. 

4. Understand your timeline

Goals work better with a deadline. If they aren’t time-sensitive, it’s too easy to procrastinate. But if you set unrealistic deadlines, like saving up $5,000 in two months, you’ll likely never be able to achieve them. So it’s important to understand when you need the money for a goal and how much time you have to save it up. For instance, say you want to pay off $12,000 of student loan debt in one year. You’d need to spend $1,000 a month, plus interest, on those payments. If there’s no room in your budget for that, adjust your timeline to reflect what’s reasonable for your income. You might also have goals with set-in-stone deadlines, like the deposit on a new apartment when your lease is up. Work backward from that date to figure out how much money you have to save each month to have enough. 

5. Set realistic amounts

It’s one thing to dream big, but turning those dreams into reality means getting real. For each of your goals, calculate how much money you’ll actually need. For instance, say you want to put a down payment on a house in five years. Do some research to find out how much money you’ll actually need for the kind of house and location you want. If the amount is more than you can save up in that timeframe, make adjustments based on your personal priorities; you might decide to look in a cheaper area, go for a condo instead, or tighten your budget so you can put more money into savings.  

6. Revisit your goals regularly

You don’t want to set and forget your financial goals. Check in quarterly or a couple of times a year to update your goals based on shifts in income, plans, lifestyle, or new opportunities. For example, you may have been saving to buy a new car in three years, but wind up moving to a city with great public transportation, so you decide to shift your savings to a different priority. Similarly, as you achieve your goals, you can continue to add new ones, so you’re always working toward something. You have the freedom to adjust your financial goals to fit your ever-changing needs. 

The role financial goals play in your big-picture plan

Financial goals don’t have to be limited to things you want to save up for. Goals are part of an overarching financial plan that charts your current and future fiscal landscape. In addition to savings goals, you might work toward other financial goals like:  

• Getting out of debt 
• Building your financial literacy 
• Starting a rainy day fund
• Planning for retirement
• Investing in the stock market
• Reducing spending
• Improving your credit score
• Growing your money
• Preventing lifestyle creep
• Sticking to your budget
• Increasing your income
• Building generational wealth

Take control of your future with your financial goals

You don’t have to map out your entire future to start setting and achieving financial goals. You can start small: maybe for now you stash aside money for a weekend road trip next summer, start paying a bit more toward your credit card balance, and contribute a bit of each paycheck to your 401(k). As you get more confident with your budget and check some goals off your list, you can think bigger and plan further out. When you set specific, realistic goals, you’ll be equipped to take control over your finances now and over the long haul. 

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It could be money you make by owning an apartment and collecting rent from your tenants. It could also be earnings or dividends from your investments in the stock market. Or it could even include royalties you make from selling a book or acting in a commercial. 

Sounds pretty hands-off, right? That’s why people strive for passive income, whether they’re at the beginning of their career or working toward retirement. 

With countless passive income ideas to consider, we’ve rounded up 29 of the lowest-effort, highest-impact ways to make passive income: 

• 1. Open a high-yield savings account 
• 2. Invest in certificates of deposit (CDs)
• 3. Invest in dividend stocks
• 4. Invest in index funds 
• 5. Invest with a robo-advisor 
• 6. Invest in bonds
• 7. Invest in rental properties
• 8. Invest in REITs
• 9. Invest in royalties
• 10. Build an app  
• 11. Create and sell software 
• 12. Own a vending machine business 
• 13. Own an ATM machine
• 14. Dropshipping 
• 15. Affiliate marketing
• 16. Sell digital designs online
• 17. Publish ebooks
• 18. Start a blog 
• 19. Start a YouTube channel 
• 20. Create an online course 
• 21. Sell stock photos 
• 22. Create and sell resume templates
• 23. Do voice-over work
• 24. Rent your car
• 25. Rent your parking space 
• 26. Rent your bike 
• 27. Rent out your room 
• 28. Advertise on your car
• 29. Open a cash-back rewards card 

Now, ready to learn how to make passive income?

1. Open a high-yield savings account 

Upfront time commitment: 45 minutes

If you’re looking for a set-it-and-forget-it approach, a high yield savings account (HYSA) is one of the simplest ways to make passive income that doesn’t require a ton of money upfront. With this type of account, your earnings come from the interest they generate. Unlike a traditional savings account, a high-yield savings account can provide returns around 20–25 times the national average in interest. 

While a high yield savings account likely won’t yield as high a return as other passive income ideas, it will always earn more than if you held your money in a typical checking account (which yields no returns, as is the case for simply holding cash). HYSAs are better suited for short-term savings goals like building up an emergency fund, as opposed to meeting your long-term wealth goals. 

Be sure to do your research to find the best rates. You can open this type of account at a traditional bank and online banking platforms. 

2. Invest in certificates of deposit (CDs)

Upfront time commitment: 1–2 hours

A simple path to passive income investing as a beginner is to invest in certificates of deposit (CDs). They operate similarly to a traditional savings account, but they can earn more in interest over time—no effort on your part. 

How much you can earn with a CD depends largely on the term length you choose—a few months or up to ten years—and the institution with which you choose to get a CD. Consider opting for an online bank over your local brick-and-mortar branch so you can shop around for the best interest rates. With longer terms, your money has to grow. 

While interest rates constantly change, most CDs can earn between 0.25% and 2% in interest. While this method will earn you more than a regular savings or checking account, don’t expect it to yield mass amounts of wealth. It’s best for shorter-term income goals, like saving for an upcoming purchase in the next year or two. 

3. Invest in dividend stocks 

Upfront time commitment: 2 hours

A dividend is the portion of profits that a company regularly pays out to investors—often quarterly. While dividend stocks won’t yield returns as high as more volatile growth stocks, they’re generally more stable and can be a great source of dependable cash payouts. 

There are thousands of companies you can buy dividend stocks from. The key is researching potential companies before you buy. Instead of looking for companies with the highest returns, seek out companies with a strong track record of consistent growth. High-performing companies may also increase their dividend payouts as time goes on. 

4. Invest in index funds 

Upfront time commitment: 1 hour 

For passive income investments that carry less risk, consider index funds. Contrary to an individual stock, an index fund is a basket of many stocks and other securities that tracks a certain index (like the S&P 500) that aims to yield returns equal to that index’s performance. 

Index funds are an appealing passive income option for new investors. Since they contain hundreds of companies within a single fund, the success of one company in the fund can offset the poor performance of another. As a result, it’s a low-maintenance, hands-off way to generate income and diversify your portfolio—a win-win! 

5. Invest with a robo-advisor 

Upfront time commitment: 30 minutes

New investors who are also keen on creating a passive income can benefit greatly from investing with a robo-advisor. Robo-advisors take the guesswork out of building a portfolio, and they automatically manage it for you once it’s set up. 

Once you share your risk preferences and financial goals, a robo-advisor selects and oversees the ideal asset allocation for your portfolio. You can invest as much or as little as you want and let your robo-advisor do the work for you. To get started on Stash’s automated investing platform, for example, all you need to do is set your preferences and add funds—then sit back and relax.  

6. Invest in bonds

Upfront time commitment: 45 minutes

Bonds can offer low-maintenance sources of income, often for very little risk depending on the type of bond you choose. 

Bonds are essentially a form of debt owed to you by the government, a corporation, or whatever entity sold them to you. They all come with a price, a maturity date, and an interest rate. When the maturity date arrives, you’re paid the price of the bond plus interest earned. 

You can choose from bonds with different time frames, from a few months to ten years. If you’re looking for immediate forms of passive income, you may opt for short-term bonds. While they’re less risky with faster turnaround keep in mind that they have lower interest rates and overall returns than longer maturity bonds. 

7. Invest in rental properties

Upfront time commitment: Ongoing

Investing in rental properties is one of many the ways to make passive income. Traditionally, this involves buying property—whether it’s your first or second home—and renting it out to tenants. At first, the extra income can help pay down the mortgage. Once that’s paid off, everything else is pure supplemental income, save for eventual repairs (or property management fees, if you’d rather hire someone else to actively manage the property). 

8. Invest in REITs

Upfront time commitment: 3–4 hours; ongoing 

If you want a more hands-off approach to capitalizing on real estate that doesn’t require you to buy your own property, consider real estate investment trusts (REITs). A REIT is a company that owns and manages real estate—which you can purchase in shares just like with dividend stocks. 

Since the law requires REITs to deliver at least 90% of taxable income back to shareholders, they typically yield higher returns. Though not all are created equal, and you’ll need to do some research to pick a solid REIT. They’re available for a variety of different sectors, from healthcare buildings to commercial apartments, all of which perform differently in the economy. 

What’s more, if a REIT doesn’t perform well, dividends can be cut or even halted entirely, making your research all the more imperative. Factors to analyze before buying into a REIT include tenants’ rent payment history (if they’re not paying their rent, dividend cuts are likely), a manageable debt rate, and the overall state of the economy. 

9. Invest in royalties

Upfront time commitment: 1 day; ongoing

Investing in royalties means earning returns for the ongoing use or ownership of a type of asset, whether physical or digital (such as a product or a song). Owners of such assets often choose to sell royalties to get funding, allowing investors to capitalize on the product’s success. 

There are many types of royalties to invest in, from copyrighted works like books and music to natural resources like oil and gas. You can start earning royalty income through royalty auction sites or buying shares of royalty income trusts (similar to how one can buy shares of a REIT). 

When choosing a royalty to invest in, it’s best to stick with something you understand. If you happen to have expertise in, say, operating franchise businesses, you may opt for earning royalties that way. Whatever you choose, royalties can be a great avenue for creating passive income as long as the asset itself is profitable. 

10. Build an app  

Upfront time commitment: 3–6 months depending on experience; ongoing maintenance 

If you have existing programming experience or have an idea for an app you’ve been wanting to try, building an app is another way to make passive income. You may also only have an idea for an app but lack the expertise to build it. In this case, you could hire a developer or programmer to build it for you. 

While this method can certainly be lucrative if it succeeds, it requires a great deal of research—not only for the app itself but also for how you’ll market it once it’s built. Without a thoughtful marketing plan in place, it’s unlikely that your app will gain much traction. Knowing your intended audience and having a strategy for marketing and distributing your app is key to success. 

A smart way to combat this dilemma is to consider building an app for someone else. Simply search for opportunities on sites like Upwork or relevant job boards to find individuals or businesses looking to hire an app developer. 

11. Create and sell software 

Upfront time commitment: 2–6 months

If you have a background in programming, you can monetize your skills by creating and selling software. Developing software products may include creating your own mobile game, business software, or educational software. 

Alternatively, you could build one-off programming projects for individuals and businesses if you’d rather not come up with a new software idea yourself. Remember that your software doesn’t need to be overly complex. If you can create easy, useful software that serves a specific need for a specific audience (like B2B companies, for example), you can make a hefty side income.  

12. Own a vending machine business 

Upfront time commitment: 1 month; ongoing 

Owning a vending machine business is a low-maintenance way to create passive income streams without needing specialized skills— save for a little business savvy. The main requirement is the funds to purchase the vending machine, which can be upwards of $2,000. You’ll also need to account for the ongoing costs of stocking your machine. 

Once these costs are covered, a successful vending machine business comes down to understanding profitable locations and how to best serve the market needs of that specific location. This will include choosing what products you’ll stock, the type of vending machine you’ll buy, and finding a high-traffic area for your machine. 

While a vending machine business is highly passive once everything is in place, keep in mind the up-front time investment required to be successful. In addition to sourcing locations and ongoing machine maintenance, you’ll also need to handle legalities like proper tax filing and obtaining licensing permits for potential locations. 

13. Own an ATM machine

Upfront time commitment: 1 month; ongoing

ATMs are everywhere, from convenience stores and gas stations to bars and hotels, and many are owned by everyday individuals. Not including ATMs that clearly belong to a bank branch or financial institution, anyone can own an ATM as a source of passive income. They generate revenue through the fees charged to customers who use your ATM to withdraw money. 

While the fees you earn from your ATM are relatively small (usually around $3.00), the daily transactions add up quickly: the average ATM processes around 180 transactions a month. If you earn $3.00 for each transaction, that’s $580 a month. The key to success here is finding high-traffic locations where your machine will attract more customers, earning you more money. 

Keep in mind that, similar to owning a vending machine, you’ll need to have enough funds to purchase your machine, which can cost anywhere from $2,000 to $3,000. 

14. Dropshipping 

Upfront time commitment: 1 month; ongoing 

If you’re wondering how to make passive income with no money, dropshipping can be one of the best ways to make passive income. Dropshipping is an online business model that doesn’t require store owners to manage an inventory. Instead of sourcing, storing, and shipping a huge inventory of products, dropshippers use a third-party vendor to handle those jobs. 

The main task of successful dropshipping is finding the right products and having an advertising strategy to get them in front of your target customers. Dropshipping is an appealing beginner passive income idea since it doesn’t require a large investment to begin—you don’t need to purchase any inventory, rent a storage space or worry about handling shipments. 

With these costs out of the way, the main focus is making your online store appealing and executing strategies to drive traffic. 

15. Affiliate marketing

Upfront time commitment: 3–6 months to build an audience

Affiliate marketing involves earning commissions by promoting someone else’s (or another business’) product or service. It’s akin to a salesperson making a sale and earning a commission, except you don’t work for the owner of the product you’re promoting. Instead, you act as a link between your audience and the third-party product. If someone from your audience uses your affiliate link to purchase from a third-party company, you earn a commission. 

Successful affiliate marketing requires an audience—whether that’s from your podcast, your blog, social media, or your website—making this avenue well-suited for online content creators. While you can start with affiliate marketing as soon as you have that home base established, you won’t see much monetary traction until you amass a decent amount of followers, readers, or listeners. 

While affiliate marketing is a passive income strategy, you won’t begin to earn money passively until you’ve invested time in creating content and growing your traffic. The amount of time this could take depends on your niche and your platform, but it can take significantly longer than you might think. However, once you’ve built up some momentum, it can be quite lucrative. 

16. Sell digital designs online

Upfront time commitment: Ongoing

If you have graphic design skills, put them to work to create an alternative income stream. Sites like Creative Market or 99designs allow you to quickly connect with potential customers who are looking for design products, from logos and branding assets to website themes, fonts, and illustrations. 

17. Publish ebooks

Upfront time commitment: 6 months

If you enjoy writing and have expertise in a particular subject, writing and self-publishing ebooks can be a lucrative passive income stream. They don’t require a lot of money to get started, either—as a digital product that you buy and sell online, there are no printing or shipping costs to cover. And, most platforms allow you to self-publish your book for free. 

Successfully publishing an ebook requires some time and effort upfront. You’ll need to decide on a publishing platform, research the market demand for your idea, and of course, spend time actually writing your book. Costs to consider include hiring a proofreader and editor, hiring a designer (it turns out people do judge books by the cover!), and any commissions and taxes you have to pay  from your earnings.

Even with those bases covered, your efforts could fall flat if you don’t also consider how you’ll market your ebook. Creating a marketing strategy or campaign is crucial to ensuring your ebook finds your target audience. For this reason, you can start generating income faster if you already have an established audience. 

18. Start a blog 

Upfront time commitment: Ongoing

Online content creation has quickly become one of the most popular ways to make passive income, and those with a penchant for writing can do so by starting a blog. You can set up a blog website in less than an hour—the hardest part is committing to creating quality content and building a sizable enough audience to start generating income. 

There are a variety of ways to monetize a blog, including becoming an affiliate marketer, publishing sponsored posts, running ads, or even selling your own products. You may want to determine your monetization strategy first so it can inform the type of content you create and where you’ll promote it. 

Starting a blog is a winning beginner passive income strategy because you don’t need any special coding or design skills—plus there are countless web hosting platforms available for little to no cost. The main thing to keep in mind is how much effort it takes to create and promote your content. With patience and persistence, however, it’s possible to make upwards of thousands of dollars a month with a blog. 

19. Start a YouTube channel 

Upfront time commitment: 3–6 months to start building an audience; ongoing 

Just about anyone can become a successful content creator on YouTube and generate a sizable passive income, so long as you’re willing to invest time in building an audience and consistently creating content. 

Ads, such as the advertisements you see before a video plays, are the main way YouTube creators make money. Different channels can earn varying income levels depending on their particular niche and number of subscribers. 

That said, to earn money through ads, you’ll need at least 1,000 subscribers, which is why this passive income stream requires an upfront time investment and commitment to creating genuinely useful content. The more content you share and views you receive, the more you can earn. 

20. Create an online course 

Upfront time commitment: 3–6 months

Creating and selling online courses can be a highly lucrative form of passive income, and once you gain some momentum, you can truly start earning money in your sleep. 

If you’re knowledgeable about a topic and want to educate others, an online course is a great way to monetize that expertise. Once you have one or multiple courses up and running, you can continue to sell them without having to tend to things like stocking and shipping inventory since it’s all online. 

To successfully create online courses as a form of passive income, you’ll need to invest some time upfront outlining your course, recording it, and creating additional elements like bonus downloads or templates for your students. 

21. Sell stock photos 

Upfront time commitment: 2 hours; ongoing 

If you like photography, consider using your photos as a passive income source.   While earning money from photography used to require expensive equipment and tedious time spent uploading and editing photos, there are plenty of alternatives to monetizing your photography skills nowadays—like selling stock photos using nothing more than your smartphone. 

Sites like Shutterstock and DepositPhotos offer platforms where creators can sell photos, typically with a commission or flat fee for every photo you sell. In theory, just one photo could become a recurring passive income stream since you can sell it over and over again with no extra work on your part. You’ll just need to create your portfolio, add your images, and collect your monthly earnings. 

With the large demand for stock photography, focusing on a certain niche or style can help differentiate your photos and allow you to cater to (and be found by) a more specific audience. You’ll need to submit a portfolio for approval on most platforms to get started, and it’s quick and easy to get up and running from there. 

22. Create and sell resume templates

Upfront time commitment: 2 hours

For individuals with a keen eye for impactful resume design, creating and selling resume templates could be a fantastic passive income opportunity. In a competitive job market, job seekers are always on the lookout for ways to make their applications stand out, and a well-designed resume to highlight their experience and wins is a crucial component.

These resume templates can be tailored to various industries, job roles, and design preferences. Sellers can craft visually appealing, professionally designed templates with the right balance of style and readability. Sites like Etsy provide a platform to showcase and sell these templates, allowing creators to reach a broad audience of job seekers.

One of the great advantages of this passive income idea is that you can sell the same templates over and over again. Once a template is designed and uploaded to a platform like Etsy, it continues to generate additional income as long as there is demand. Furthermore, updating and adding new templates to your store can help keep your offering fresh and appealing to a wide range of customers.

So, not only can you generate extra cash from your design skills and expertise in information hierarchy, but you can also feel good about helping job seekers improve their chances in a competitive job market. This passive income stream combines creativity and business acumen in a way that benefits both you and your customers.

23. Voice Act for Real-World Narrations

Upfront time commitment: +2 hours; ongoing

Voice acting can be a highly rewarding passive income option for those with a memorable voice and a desire to diversify their income streams. While the world of anime and video game character voice-overs may be enticing, there’s a wide range of real-world opportunities waiting to be explored.

Many industries require voice narration for various purposes, including company training videos, phone system recordings, radio ads, and audiobooks. The demand for professional voice talent is ever-present, making it an ideal avenue for generating passive income.

To get started, you’ll need some upfront investments in essential equipment, such as a good microphone and a quiet room setup to ensure high-quality recordings. Patience and practice are key as you hone your craft and develop a professional portfolio. Once established, you can leverage platforms like Upwork, Fiverr, or specialized voice-acting websites to connect with clients and secure ongoing narration work. This passive income stream allows you to turn your distinctive voice into a lucrative asset while contributing your talents to various industries.

24. Rent your car

Upfront time commitment: 30 minutes

Similar to renting out your home on Airbnb, you can rent out your car as a way to earn passive income. This is truly a passive income idea since owning a vehicle is the only requirement to start earning money. 

You can rent your car on platforms like Turo, which makes it easy to sign up and get started. If you’re renting out a car you already own, be sure it’s not the one you use for everyday transportation—this passive income idea works best if you have an extra car or two that you don’t typically drive. 

Other popular online rental platforms include Getaround, Avail, and HyreCar.  Most of them manage all the logistics—like screening potential renters and processing payments—for you, making it surprisingly easy to start earning. Your earning potential depends on your location, type of car, and how often you list your car for rent each month. 

You can also earn more by listing more than one car. According to Turo, the average annual income is $10,516 for those with at least two active vehicles valued between $25,000 and $34,999 and who rented at least seven trip days per month. 

25. Rent your parking space 

Upfront time commitment: 20 minutes

If you live in a large city or densely populated area (even better if it’s near an airport), renting out a parking space you don’t use might be one of the easiest passive income ideas out there. If you’re centrally located near popular concert venues, sports arenas, or convention centers, renting your parking spot can earn you some serious cash during those events. 

With online parking marketplaces like Neighbor, Spacer, and SpotHero, you can sign up and get started in just a few minutes. While city dwellers may have an easier time cashing in on this idea, other opportunities include renting to local office workers, commuters, or students in need of a parking spot. 

Ultimately, your location will determine your earning potential, but beginners can expect to earn around $50–$300+ a month, according to Neighbor. And other sites like Parklet even have handy price guide tools to help you find a rough estimate of what you might be able to earn.  

26. Rent your bike 

Upfront time commitment: 30 minutes

You might not have an unused vehicle lying around, but what about a bike? Much like renting your car or parking space, creating a passive income is also possible with a bicycle. 

Rental sites like Spinlister can connect bike owners with people actively searching for a rental bike. In addition to insuring your bike against theft on your behalf, most platforms will also handle verifying potential renters and processing payments. If you’ve been wondering how to make passive income with no money, this could be the idea for you! 

Similar to renting out your car, your earning potential depends greatly on your location, local demand, and how often your bike is available to rent. Need an alternative to bike rentals? Spinlister also lets you rent out surfboards, snowboards, and skis! 

27. Rent out your room 

Upfront time commitment: 2 hours; ongoing

There’s no denying the wildly popular world of renting out your home on Airbnb. But for a more approachable beginner passive income idea, consider renting out a single spare room or other underutilized space. If it has a roof, people will rent it—be it a treehouse, a shipping container, or the aforementioned spare room you don’t use. 

Of course, some thought and planning are necessary when listing your spare space for rent. You’ll need to research local demand and the going rate for room prices to determine a fair price. You should also consider safety precautions, like interviewing potential renters before having them stay in your home. And, you’ll want to put some effort into your listing photos to make it appealing to prospective renters. 

Depending on what you want, there are many ways to make this idea work for you. If you’ll be traveling for an extended period, that could be a good opportunity to earn some extra cash by letting someone else stay while you’re away. Or you may choose to set a specific cadence based on how much you want to earn, like renting out at least two weekends a month. 

How often you make your space available is entirely up to you, but building a consistent flow of renters adds up faster than you’d think. 

28. Advertise on your car

Upfront time commitment: Varies

What if you could make a passive income just by driving your car? We’re not talking about Ubering, either—instead, consider getting paid to put advertisements on your car, or “wrapping” your car. 

You’ll first need to find an advertising agency that offers this service, then apply and go through their screening process. To qualify, they’ll assess things like your driving record, the age of you and your car, and whether you meet the minimum requirement for daily miles driven. Once approved, they’ll wrap your car with the ads for free. The type of car you drive does matter—approval is more likely if you drive a newer car. 

This can be a truly passive income opportunity since you don’t have to change anything about your day-to-day driving habits—you’ll just be driving around with the advertisements, potentially pocketing hundreds in extra cash each month. Read the application thoroughly for a rough estimate of what you’ll earn—it should include your compensation rates and how long a given campaign will last (that is, how long you’ll need to drive to be compensated). 

While this passive income idea requires little to no effort, do your due diligence in finding a reputable agency. Legitimate operations will never charge drivers a fee to have their car wrapped, so if an agency requests payment, take it as a red flag and look elsewhere. 

29. Open a cash-back rewards card 

Upfront time commitment: 30–45 minutes 

If you’re a responsible credit card user who pays your bills in full each month, consider opening a credit card with a cash-back rewards program. Such programs offer a percentage of cash back on qualifying purchases, which you can redeem for card credits or online purchases. 

Cash-back rewards programs vary depending on the credit card you choose, with some offering a fixed cash-back rate and others offering higher rewards for certain categories, like groceries or gas, or on websites like Amazon and eBay. Regardless of the one you choose, it can be a great passive income idea if you already use a credit card for everyday purchases. 

Pros and cons of passive income

When it comes to learning how to make passive income, there are countless avenues available depending on your skills, interests, and how much time you’re willing to devote. While there are plenty of truly passive income ideas, like advertising on your car or renting out your parking space, the most lucrative ideas typically require a bit of time and effort. 

That said, increasing your monthly income by even the smallest percentage can help you reach both short-term and long-term savings goals, especially saving for retirement. 

FAQs about how to make passive income

Still have questions about how to make passive income? Find the answers below. 

How can I make passive income with little money?

A low-cost, hands-off way to make a sizable passive income is by investing in index funds. Even if you’re brand-new to investing, index funds are approachable and don’t cost much money to start. If you want to earn significant returns over time, index funds are a low-cost way to do so—the S&P 500 index, for example, has seen average annual returns of nearly 12%. 

How many income streams should I have?

There’s no right or wrong answer—the number of income streams you should have depends on your personal goals. If you’re interested in earning passive income as a way to pocket some extra cash each month, a single passive income stream can do that for you. 

On the other hand, individuals looking to break from their 9-5 job and fully support themselves with passive income alone will likely need multiple passive income streams to do so comfortably. 

How can a beginner earn passive income?

One of the best beginner passive income ideas may be investing in index funds or ETFs. Compared to picking individual stocks, which requires time, knowledge, and effort, funds are a low-cost way to own many different stocks at once without having to keep tabs on the performance of individual companies. 

Not only are these funds an easy way to start building a passive income, but they can also have significant long-term payoff potential.  

The post How to Make Passive Income: 29 Passive Income Ideas For 2023 appeared first on Stash Learn.

In this article, we’ll cover:

• How envelope budgeting works
• Pros and cons of the envelope system
• Envelope budgeting in 5 steps
• Other budgeting strategies you can try

How envelope budgeting works

The envelope system helps you manage your predictable bills, like rent and car payments, as well as variable expenses, like groceries, entertainment, household goods, and personal care. Simply group your expenses into categories, grab some envelopes, and label each one with a category. When you get paid, put a predetermined amount of cash in each envelope. Spend as needed from each category, but when the cash is gone, you’re done spending until your next paycheck comes.

For example, say you’ve allotted $200 per month for entertainment. The next time you head to a movie with friends, grab your “entertainment” envelope and pay for your tickets and snacks with that cash (or your debit card if you’re using digital envelopes). The amount left in the envelope is your remaining entertainment budget for the month.

Benefits and downsides of the envelope system

Every money management strategy has its pros and cons. While simple and straightforward, the envelope system may not provide the flexibility you need. Let’s take a closer look at the benefits and downsides of envelope budgeting.

Envelope budgeting pros

The envelope method is designed to give you a sense of clarity and control over how you spend your money. For many people, using physical cash makes spending feel more “real” while providing a better understanding of everyday spending habits. And it may even help you spend less on impulse buys.

• What you see is what you can spend: Whatever is left in the envelope is what you can spend for the whole month, so you’re always aware of your limits. That can make unplanned purchases less tempting.
• Using cash may help you spend less: If you’re motivated by little rewards, it’s gratifying to see cash left in your envelopes at the end of the month. And when you see the dollars in your envelope dwindling, you may feel more motivated to keep a close eye on your spending.
• Helps you understand your spending habits: After a few months, the envelope method can help you identify trends in your spending so you can make sensible adjustments to your budget. If your grocery envelope is usually empty before the end of the month but your entertainment envelope tends to have some cash left over, it may be time to reallocate some funds. 
• Can accommodate cash or debit card spending: Envelope budgeting works just as well with cash and real envelopes as it does with a debit card and digital “envelopes.” Various budgeting apps and online banking tools are widely available to help you maintain a cashless envelope system.
• Simple and straightforward: New to budgeting? The envelope method makes it simple to track where your money is going and how quickly you’re spending it. You’ll either have the cash to make a purchase or you won’t. 

Envelope budgeting cons

While envelope budgeting is simple and straightforward, it can get tricky if you need lots of flexibility or share expenses with others.

• Limited flexibility: Simple doesn’t always mean flexible. By setting strict limits on spending in different categories, envelope budgeting can feel restrictive, especially if you struggle to accurately estimate your expenses. 
• Harder to track for more than one person: Sharing expenses with spouses, partners, or kids isn’t unusual, but envelope budgeting may make it more difficult. Tracking how much money is going in and out of envelopes with multiple users can be complicated and time consuming.
• Can be cumbersome if you use cash: Carrying cash in your wallet can be bulky, especially if you’re managing small bills and coins. And certain expenses are harder to pay for in cash; there are even some stores that no longer accept cash payments.
• Complicated to adjust on the fly: If you run out of cash in one of your envelopes and want to immediately reallocate some funds from another category, you’ll need to do some inconvenient shuffling and be careful that you’re not shorting one category too much. 

How to start envelope budgeting in 5 steps

Ready to get started with envelope budgeting? These five steps will show you how.

1. Determine your monthly take-home income

Your most recent pay stub should show you your net income, or the total income you bring home after taxes and any other deductions are subtracted. Write down that number, along with any additional sources of income you might have from things like interest, child support, or side gigs. Your monthly take-home income is the total of all those numbers.

2. Calculate your monthly expenses

Make a list of all your monthly expenses and how much you spend on each one. Include necessities like housing, groceries, utilities, and discretionary spending on things like streaming services and hobbies. Don’t forget about debt repayment and money for savings and investments. 

Variable expenses can be a bit tricky to calculate. For things like groceries, gas, dining out, and other things that change from month to month, take a look at your spending over the last six months and determine your average spending to get a baseline number for planning your budget.

Don’t forget to account for irregular expenses that don’t happen each month, like vehicle maintenance, vet bills, haircuts, or quarterly water bills. For these expenses, you’ll want to determine how much you need to put aside each month so you have the money when you need it. For example, if you spend $90 on an oil change every three months, divide that expense by three and record your monthly oil change expense as $30. 

3. Compare your income and expenses

Now it’s time to see how the numbers line up. Are you making enough to cover your monthly expenses? If not, it’s time to take a closer look at your spending to decide what’s essential and what you could cut from your budget. Shopping around for better prices on things like car insurance and phone plans can also help you trim your spending. You might also consider picking up a side gig if you want to increase your income.

If you’re earning more than you spend, congratulations. Consider putting that surplus into savings, using it to pay off debt, or investing it to work toward your long-term financial goals. 

4. Determine envelope categories and allocate money

Now that you’ve identified all your monthly expenses and know you can cover them with your income, it’s time to create the spending categories that will be your envelopes. This step is where you really define your monthly budget.

Start by grouping your expenses into categories that make sense for you. You might want to get very granular, such as having separate envelopes for entertainment at home, going out to events, and dining at restaurants. Or you may prefer to have one general envelope for entertainment that includes all of those things and more.  

Once you’ve settled on your categories, decide how much money you’ll allocate to each envelope every month based on the spending needs you determined in step one. You may need to adjust this a bit from month to month, such as putting more into your “gifts” envelope when a friend’s birthday is coming up, but the goal is to create a spending plan you can stick to over time. This is also the time to think about your goals and plan accordingly. For instance, if getting out of debt is a priority, you’ll want to allocate more than just your minimum payments to your envelopes for credit cards and loans.

Budgeting tip: one way to make the envelope system a bit more flexible is to have a “miscellaneous” envelope with a bit of money you can dip into if small, unexpected expenses arise. Just be careful not to rely on this envelope too much or you won’t be getting the full benefit of planning and tracking your spending. 

5. Stash your cash or take your envelope system digital

Now it’s time to make those envelopes real. If you’re going the cash route, grab a stack of paper envelopes and start labeling. Then stuff your envelopes and start using that cash to pay your expenses. If you prefer a less tactile approach, create digital envelopes by setting up categories in a budgeting app or your online banking tools and use your debit card to take care of your expenses. 

After you’ve tried envelope budgeting for a few months, you might want to review your spending and make adjustments to your budget. Have you encountered expenses that you forgot to include initially? Are you consistently running out of money early in some categories or winding up with a lot leftover in others? Tweak as necessary to make your envelope system work for your life. 

Other budgeting strategies

There are countless ways to budget, so don’t be afraid to experiment until you find the approach that works best. If you try envelope budgeting and decide it’s not right for you, consider the 50/30/20 rule or the zero-based budgeting system.

The 50/30/20 rule

The 50/30/20 rule is a budgeting guideline that divides your monthly income among three broad categories: 50% to needs, 30% to wants, and 20% to savings/investing. Like the envelope method, this approach can simplify the budget process and make your money management easier by grouping your expenses into categories.

The zero-based budgeting system

The zero-based budgeting system gives every dollar you take home a specific function and leaves you with no unused money at the end of the month. Because every dollar is assigned a specific purpose, it can help reduce impulse spending and allow you to plan your budget very precisely. 

Your wallet, your budget

If you often wonder where your money goes each month or tend to spend more than you’d planned, envelope budgeting can help. When you open your wallet, you can see exactly how much you have left for the month and make choices accordingly. 

The right budgeting strategy can make managing your money less stressful and give you confidence when working toward your goals. Even if you’re a budgeting beginner, don’t worry. You’ve got this.

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In this article, we’ll cover:

• How zero-based budgeting works
• Zero-based budgeting pros and cons 
• How to build a zero-based budget in 6 steps
• Zero-based budgeting tips
• Alternatives to zero-based budgeting

How zero-based budgeting works

Think of zero-based budgeting as putting each dollar you earn to work. You give the dollar a job, sending it off to help fund one of your expenses. Some dollars will go toward paying for necessary costs, like rent, utilities, and health insurance. Others will go toward longer-term goals, like going on a trip or buying a home. And some money will be dedicated to discretionary spending, like entertainment or treats. 

For example, if your take-home income each month is $4,500, you’ll plan how you’re going to spend that entire amount on all of your expenses. After allocating the amount you need for necessities, you’ll distribute the rest among categories for discretionary expenses and savings based on your priorities and goals; all those expenses will add up to $4,500. 

The key rule is that every single dollar must be assigned to a specific spending category so that when you subtract your planned expenses from your income for the month, the difference is zero.  

Pros and cons of zero-based budgeting

Zero-based budgeting can be a highly effective method for keeping close track of your spending, but no budget method is for everyone. Here are some pros and cons to keep in mind.

Zero-based budgeting benefits

The zero-based budget method can allow you to gain a deep knowledge of your income, your spending, and how the two relate. By employing the system and sticking to its rules, it’s possible to make better decisions and move more efficiently toward your financial goals. 

• Gives you tight control over your spending: When all your money is assigned to specific categories, you have a clear plan for how you’ll spend it. This precision can help you avoid overspending, impulse buying, and using your money in other ways that don’t align with your priorities.
• Can help you increase savings: Saving for larger purchases, retirement, or other long-term aims calls for consistent contributions over a long period of time. By making saving part of your monthly financial plan, it can be easier to stick to your goals and enjoy the sense of accomplishment that comes from seeing your savings build.
• Provides clarity and control: A zero-based budget requires that you make a detailed plan each month and keep close track of your spending. This process gives you an opportunity to really think through your needs, learn to anticipate expenses more accurately, and see exactly where your money is going. If managing your finances is stressful, you may find that level of control and visibility reassuring. 

Zero-based budgeting downsides

Despite the advantages of zero-based budgeting, it can also pose its own set of challenges. Consider the following before you decide to move forward with this method.

• Can be time-consuming: Not everyone has an abundance of time to focus on their finances. Zero-based budgeting requires an initial investment of time to set up and careful tracking of your income and spending on an ongoing basis. You can relieve some of that burden by using a budgeting app or online banking tools that automatically categorize your spending, but you’ll still need to check in on your budget frequently throughout the month.
• Provides less flexibility: With every single dollar allocated to a specific category, it can be difficult to adapt to an unplanned expense or when the cost of something exceeds what you’d anticipated. Building a rainy-day fund for smaller expenses and an emergency fund for bigger ones can provide the cushion you need to stay on budget. 
• Variable expenses are harder to plan for: Since zero-based budgeting is so precise, costs that change from month to month can make planning more challenging. You can’t predict if gas prices will go up or anticipate your grocery bill down to the penny. The longer you stick to your budget, the better you’ll get at estimating how much money you’ll need for expenses, but it’s better to overestimate and have a bit left over in a category at the end of the month than to find yourself short.   
• Difficult to adapt to variable income: If your income is different each month or you’re paid on an unpredictable schedule, precision planning can be challenging. So freelancers and hourly workers whose schedules fluctuate might struggle with a zero-based budget. You can overcome this by using your previous month’s income for your current month’s expenses, but you’ll need to save up a month’s worth of income before you can put this into action. 

How to build a zero-based budget in 6 steps

If you’re ready to give zero-based budgeting a try, you can get started in just five steps. 

1. Calculate your total monthly income

The first step toward zero-based budgeting is adding up your total monthly income. You’ll need to account for every dollar, so be sure to include any money you take in beyond your paycheck, such as money from a side gig, child support, passive income from investments, payments from government programs, etc. 

2. Identify all your monthly expenses

Once you’ve accounted for the money you make, it’s time to examine your spending. Review your expenses over the last year and take note of what you’ve spent money on, how much you spent, and how often expenses recur. Don’t forget to account for expenses that come up infrequently, like annual magazine subscriptions, quarterly oil changes, and holiday gifts. 

Add up all your monthly expenses to get a sense of how much money you generally spend each month. For periodic expenses, you can calculate how much money they cost on a monthly basis by dividing the total cost by the frequency. For instance, if you pay $600 for your car insurance every six months, that comes out to $100 a month. 

3. Compare money in and money out

Now, compare your total income to your total expenses. If you have excess money, you’ll want to figure out how to put it to good use, such as investing it in one of your long-term savings goals. If you don’t have enough to cover your expenses, you’ll need to adjust your budget until your income and expenses balance out to zero. Ask yourself what you can spend less on or eliminate, look for better deals on services, and consider whether you want to boost your earnings through a side hustle. 

4. Create categories and allocate your income

Now that you understand your income and expenses, you can start to plan for future spending. Create a budget category for each expense. Aim to be detailed enough that you can be precise in your planning and tracking, but not so granular that your budget is cumbersome to use. You might want to group some things together, like having one line item for all your streaming services or combining groceries and take-out meals into one general “food” category. But you might not want to lump all your date nights, happy hours, and movie rentals into a general “entertainment” category; that would make it tricky to really watch your spending.  

This is also the time to think about how you want to spend your money and plan accordingly. Is the amount you usually spend on each category aligned with your goals? Would you want to use your new budget to change the amount you spend on some things? In addition to your common expenses, consider your long-term goals and add these to your budget. These can include getting out of debt, saving toward a big purchase, building your emergency fund, or investing for retirement. 

Once you’ve defined your categories, allocate your income across them for the coming month, ensuring every dollar gets a job and your income minus your expenses equals zero.

5. Set up a system to plan and track your spending

With your newfound understanding of your complete financial picture and a solid plan for the future, the only thing left to do is maintain your budget from month to month. Some people go the DIY route and make a spreadsheet. That’s a simple approach that lets you customize things to your liking, but it does require manually entering all of your expenses on a regular basis. You can also automate the process by using a budgeting app; your online bank account might also have built-in features for creating budget categories and tracking your spending. 

Whether you create your own tracking or use an automated tool, check in on your spending frequently. At least once a week is recommended, but a few times a week or even every day may be helpful when you first get started. Keeping a close eye on money going in and out will ensure you always know how much you can spend on things and help you stick to your budget.  

6. Revisit your budget each month

Zero-based budgeting depends on consistent maintenance. You don’t have to reinvent the wheel each month, but you’ll want to sit down with your budget before the first of each month and make adjustments as needed. For instance, you may need to put a bit more in your “car maintenance” category when you know it’s time for an oil change and less in your “gas bill” line item when the weather starts to warm up.  

In addition, your financial goals can change over time, and what was important to spend money on in January might not be so critical come summer. That’s why it’s important to look at your budget with fresh eyes each month and make sure it still makes sense for your current financial outlook.

Tips for making a zero-based budget work for you

Zero-based budgeting can provide precision in planning for expenses and tracking your spending, but it might not be right for everyone. If you decide to use this system, here are a few tips for ensuring you stay on track.

• Give every dollar a home: Make sure all your money is accounted for once you’ve built your budget. That means pushing leftover funds into your categories (perhaps savings or other long-term goals). If you have extra money at the end of the month, carry that over into the next month as income. For example, if your take-home income is $5,000 a month and you only wind up spending $4,800 one month, you have $200 left over. Include that $200 in your income when you set up your budget for the following month. 
• Make a monthly budgeting date night: It’s important to remain both watchful and adaptable with your zero-based budget. Plan for regular maintenance by setting aside time each month to review your income, expenses, and goals, and set up your specific budget for the coming month.
• Analyze and improve your spending habits: Zero-based budgeting is all about tracking what you’re spending money on and using it to stay on course with your priorities. Use your budgeting date night to reflect on how the previous month went. What categories had money left over? Which ones wound up in the red? If you’re often overspending on something, this is your chance to either adjust your habits or make decisions about what you really want to prioritize. 
• Spend from one bank account: Centralizing your incoming and outgoing transactions in a single checking account can help you more easily keep track of your cash flow. If you have savings as part of your budget, you may want to open a separate high-yield savings account and transfer money into it each month, just like you would pay a bill, but don’t use that account to pay for your expenses.  
• Build up your emergency fund: The zero-based budgeting strategy doesn’t leave you with extra cash to spend on unforeseen expenses. Make sure you’re ready for the unexpected by creating an emergency fund category in your budget and allocating money to it every month. 

Alternatives to zero-based budgeting

There’s no one right way to budget. If you try the zero-based approach for a few months and it’s not working for you, consider whether one of these alternatives may be a better fit.

The 50/30/20 rule

The 50/30/20 rule is a general strategy for budgeting that allocates your income based on three broad categories: 50% goes to pay for your needs, 30% funds your wants, and the remaining 20% is dedicated to savings and investing.

Envelope budgeting 

In envelope budgeting, you allocate money to expense categories by actually placing cash in envelopes. As the month progresses, the amount in each envelope is what you have to spend on that category. This method can also be taken digital by using a budgeting app and debit card.

Is zero-based budgeting right for you?

Learning how to make a budget can be the first step in taking control of your finances in the present and building toward your long-term goals. Zero-based budgeting can be an effective strategy if you want to stay in control of your spending and carefully plan how to make the most of your money. And if you’re new to managing your own finances, this approach could give you useful insights into your spending habits and how to live within your means.  

Whatever budgeting strategy you choose, Stash’s online banking features make it easy to stay on track with customizable expense categories and automatic tools for tracking your spending and building your savings. 

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If you want to figure out how to pay off student loans faster, put together a debt repayment strategy that focuses on two considerations: spending less on interest and making extra payments. The less you pay in interest, the more you can put toward your principal. And when you pay more than the minimum payment each month, you reduce the length of time you’re saddled with student loan debt. These seven tips can help you make a plan and put it into action. 

1. Understand the impact of interest rates

You likely know the interest rate on your student loan, but do you know how much money you’ll pay in interest over the course of your repayment term? If you calculate the actual cost, you may be surprised at the number. You can use this student loan calculator to see how much interest you’ll pay over the life of your loan; that amount alone may inspire you to pay off your loans faster. 

The average student borrows around $30,000 in pursuit of a Bachelor’s degree. Interest rates vary depending on the type of loan. But say you took out a $30,000 loan at the current federal direct subsidized and unsubsidized loan interest rate of 5.50%. If you make the minimum monthly payment and plan to pay off your debt over ten years, you’ll pay over $9,000 in interest on top of the principal balance. If you make extra payments to eliminate the same loan debt in five years, you’ll pay about $5,000 less in interest. And if you can refinance at a lower interest rate, you’ll also pay less in interest and could pay off your loans faster. 

2. Budget for extra payments

Set a realistic budget for paying back your student loans, and stick to it. Many people find the  50/30/20 budget rule helpful: 50% of your income for needs like rent and groceries, 30% for wants like entertainment, and 20% for saving and getting out of debt. If you want to pay off student loans faster, consider shifting those percentages so you can make extra payments. For instance, you might decide to reduce some discretionary spending so you can devote just 20% of your income to wants and devote 30% to debt repayment and savings.

3. Watch out for debt repayment scams

When you’re trying to figure out how to pay off student loans faster, you’ll likely encounter lots of companies that promise to help you do just that. But be wary: scams are everywhere, so if something seems too good to be true, it probably is. Watch out for debt relief organizations that ask you for money upfront or that promise to immediately eliminate your debt. Do your homework before you commit to any new repayment plan.

4. Take advantage of the PSLF Program

The Public Service Loan Forgiveness (PSLF) Program offers as much as $10,000 in loan forgiveness for government and nonprofit organization employees. Here’s how it works: Full-time employees of qualifying organizations who make 120 qualifying monthly payments under a qualifying repayment plan are eligible to have the remaining balance forgiven on their Direct Loans. If you’re just starting your career and are interested in the government or nonprofit sector, do some research to see if your desired jobs and the type of loans you have qualify. 

5. Consider refinancing your loans

If current interest rates are lower than the rate you’re paying, refinancing might be a way to pay off your loans faster. Are you making multiple student loan payments each month? When you refinance your existing loans, you can consolidate those loans into one new student loan. The new loan is used to pay off your old loans, and you’re left with one more manageable monthly payment. You can refinance if you only have one loan as well. In either case, you could benefit if you refinance at a lower interest rate. 

There can be downsides to refinancing. If you consolidate federal loans into a private loan, you give up some deferment and forbearance options, and it could affect your student loan forgiveness eligibility. Also keep in mind that there may be fees associated with refinancing, so be sure the money you save on interest in the long term is worth it. And avoid the temptation to reduce your monthly payments as part of a refinancing plan; that route is less likely to help you pay off your student loans faster. 

6. Reduce your housing expenses

For most people, rent is one of the largest monthly expenses. If possible, consider ways to reduce that financial burden. Solutions may include moving somewhere less expensive, living with family, or splitting costs with roommates. Reducing your housing expenses can free up some of your income to put toward extra payments on your student loans. 

7. Reduce other expenses

Reducing your expenses across the board can free up money to put toward extra payments so you can pay off your student loans faster. Look for a variety of ways to save money, like reducing impulse spending, finding better deals on expenses like insurance and utilities, and letting go of some nice-to-haves that you can live without. A little austerity now means you’ll have more financial flexibility later. 

Remember, student loan debt is temporary

With careful planning and discipline, you can get free of student loan debt sooner than you think. Student loan debt is temporary; when you plan out how to pay off student loans faster, you can take more control of the timeline. Federal Student Aid has handy calculators that can simulate various scenarios, such as eliminating your debt in less than 10 years or developing the fastest plan to pay off $200k in student loans. The most effective way to pay off student loan debt is unique to each individual; these tools can help you make a plan for your particular circumstances.

For many people, getting out of student loan debt quickly is worth the effort because it frees up money to save for goals like buying a house or contributing to a retirement account. And the faster you pay off your loans, the less you spend on interest over the long term; that’s money you can save and invest for your future. 
Stash can help you stay on top of your spending with built-in budgeting tools and helpful insights about where your money is going. Get ahead on your student loan payments today so you can focus on your long-term financial goals tomorrow.

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In this article, we’ll discuss:

• How to position yourself for financial success
• Short-term methods to grow your money
• Long-term methods to grow your money

Position yourself for success

Before your money can grow, you need to build a foundation that protects what you already have. Unplanned expenses or interest on debts can undermine your efforts, and a lack of planning can make your growth strategies less effective. You can set yourself up for success with an emergency fund, debt management, careful budgeting, and a solid understanding of your financial goals. 

Set up your emergency fund

An emergency fund provides the stability you need to weather life’s unavoidable financial ups and downs. By keeping a stash of money readily available for unexpected expenses, you can avoid draining your long-term savings or going into debt for unplanned needs like medical bills, car repairs, a new roof, or even living expenses if you’re laid off from your job. 

An emergency fund is key to safely growing your money because, without one, you may have to go into debt, pull from your investments, or otherwise spend the money you were attempting to grow. Experts recommend having six months’ worth of living expenses in your emergency fund. While that may sound daunting, adding a little bit of money to your fund each month will eventually add up. You can bolster your savings by keeping this money in a high-yield savings account or similar interest-bearing account so that the money you save is making money itself. 

Manage your debt

It’s hard to grow your money when you have high-interest debt, especially when that debt is mounting as interest piles on. Loans and credit cards are often unavoidable financial tools, but they can hinder your growth opportunities. 

If your debt is increasing faster than your money is growing, you aren’t actually building wealth. For example, if your cash is sitting in a high-yield savings account making 5% interest, but your credit card debt is growing at 15% interest, it makes more sense to pay off the credit card before attempting to grow your money (with the exception of your emergency fund). 

It may make sense to focus on paying off high-interest debt, like credit cards or personal loans, before focusing on growing your money. The debt avalanche method is one popular strategy for getting out of debt more quickly. If you have longer-term debts with lower interest rates, like a mortgage or student loans, you might opt for a more balanced method. Consider putting money into growth opportunities while continuing to pay off those debts at a rate that leaves you with a net positive overall financial picture.

Understand your budget

It can be hard to grow your money if your day-to-day expenses outstrip your income, and budgeting can be a challenge no matter how much money you make. In fact, 8 million people earning more than $100,00 a year live paycheck to paycheck. By creating a budget, you can understand and take control of where your money is going, identifying opportunities to save and invest. The 50/30/20 budget rule is one popular method for planning how to spend your income and determining how much you should invest for future growth. 

Understand your goals

When thinking about how to grow your money, you may want to create a big-picture financial plan to guide your decisions. This can help you identify why you’re growing your money and specify short, medium, and long-term goals. Those concrete plans can help you commit to saving, overcome impulse-spending temptation, and start to enjoy the process of investing and saving.

Your financial planning will be most effective if you set realistic goals based on your values and circumstances. That doesn’t mean you can’t shoot for your biggest dreams. You may just need to break your goals into manageable targets so you can work toward them right away without getting overwhelmed. For instance, if you have $1,000 you could invest, realistic goals can help you decide how to make the best use of it now. When that money grows, you can seek ways to work toward your bigger goals. 

How to take advantage of short-term growth

Once you have concrete goals in mind, you can set a timeframe for achieving them based on your needs. Your strategy for growing money in the short term will differ from the approach you take for long-term aims. Short-term goals are usually things you want to achieve within one to three years, such as going on a trip, buying a car, or paying for a wedding. Growth vehicles that work better in the short term tend to be more flexible and liquid, so it’s easier to pull money out when you need it. These types of accounts usually carry less risk, since a shorter time horizon gives you less wiggle room to bounce back from volatility. 

Open a high-yield savings account

A high-yield savings account can be a smart place to store your emergency fund and short-term savings. These accounts work similarly to traditional savings accounts but offer higher interest rates and often have a minimum balance you have to maintain. The money you store here is relatively liquid, meaning it can be pulled out at any time, which makes it a great place to grow money for a trip, down payment, or other short- or mid-term goal. Plus, you don’t risk losing your funds as long as you hold the money with an FDIC-insured institution.

Interest rates for high-yield savings accounts are variable, which means they can change at any time. Rates depend on the federal interest rate and the financial institution where you open your account. Be aware that when the Federal Reserve lowers interest rates, banks usually do too, so your interest rate could drop, reducing how much your money grows.

Open a money market account

Money market accounts combine some features of high-yield savings accounts with certain characteristics of checking accounts. They offer variable interest rates, generally on par with high-yield savings accounts, and are held at the same kind of FDIC-insured banks and credit unions. Money market accounts also often have minimum balance requirements.

The main difference between a money market account and a high-yield savings account is the flexibility you have for accessing your money. You generally have the ability to write checks and use a debit card with a money market account, making it easier to spend the money you’ve saved up.

Put your money into a certificate of deposit (CD)

CDs are bank-issued savings vehicles that earn a fixed interest rate over a set length of time (known as the term). CD terms usually range from six months to five years; when you redeem the CD at the end of the term, you get your principal investment plus the accrued interest. Unlike high-yield savings accounts, interest rates for CDs are locked in when you open the account, so you have a guaranteed return. 

Generally, you can earn more interest with a CD than with a high-yield savings account, but the minimum amount required to open one is often higher, and your money is usually locked up until the CD matures at the end of its term. For example, a two-year CD might have a $1,000 minimum and 5% interest, which means you would get $1,102.50 in two years if you invest the minimum. You’ll usually incur a penalty if you close a CD before it matures. 

How to grow your money with long-term investing

When most people think about how to grow their money, they tend to have long-term investment vehicles in mind. These are the accounts you use to build wealth over the course of many years or decades. Long-term investing generally requires more commitment and carries a higher level of risk, but it can earn more than short-term options. 

Invest for retirement

The most common long-term savings goal is retirement. If you’re investing for retirement, you may want to consider a 401(k), traditional IRA, Roth IRA, or a combination of these.

The type of retirement account you choose will depend on your employment, income, and how much money you expect to need in retirement. Many investors decide to have two or even all three account types, investing up to the limit in IRAs and up to their employer match in a 401(k). 

Put your money to work in a brokerage account

If you’re looking for long-term investment accounts that aren’t specifically for retirement, you may want to consider a brokerage account. A brokerage account is a taxable investment account you use to buy and sell securities, including stocks, bonds, exchange-traded funds (ETFs), and mutual funds. Unlike retirement accounts, you can invest as much money as you want and withdraw that money at any time. 

Brokerage accounts offer specific features, benefits, and drawbacks. 

• Flexibility: You have total control over your investment strategy and the assets you hold in your portfolio.
• Taxes: Unlike retirement accounts, brokerage accounts don’t offer any specific tax advantages. You will pay taxes when you realize a profit on your investments.
• Risk: Your risk will depend on what you invest in, but all investments come with some level of risk.
• Time horizon: Generally, investments in brokerage accounts are best suited to mid- to long-term goals.
• How money grows: Money invested in stocks and funds grows through increases in share value or dividends. Investments in bonds earn a return based on interest.  
• Investment options: Most brokerages provide access to stocks, bonds, and funds. 

Invest in real estate

Real estate investing can be a useful method for diversifying your investment portfolio outside of traditional stocks and bond investments. Because of its long-term growth potential, real estate has long been a staple of wealth building, but, like any other market, real estate fluctuates and can represent a major commitment. 

Investing directly in real estate by purchasing and renting or flipping properties can be expensive, require significant effort, and yield high rewards. But there are also lower-effort, lower-expense ways to gain exposure to the real estate market. You can invest in real estate through the following methods:

• Real estate investment trusts (REITs)
• Online real estate platforms
• Renting out a room
• Buying rental property
• Flipping houses 

Grow your money your way 

How you grow your money may change over time as your income and life circumstances evolve. You may be focused on balancing your budget and squirreling away small amounts of money at one point in your life but devote more to saving and investment once your income grows. Your age, financial situation, how far you are from retirement, and your goals all play a part in deciding what methods are right for you. But one thing applies in any instance: the sooner you start putting your money to work, the more time it will have to grow. Stash can help you start investing today, no matter what your budget is.  

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What is the purpose of a sinking fund?

When it comes to sinking funds, there are no strict rules you have to follow. The key to a successful sinking fund is to personalize it to your financial needs. Unlike a general savings account, the purpose of a sinking fund is to put aside money for a specific purchase with a target amount, funding schedule, and goal date. With this intentional type of saving, you can build up the money you need for specific large purchases and gain confidence when you achieve your targets. 

To keep them separate from your general savings, sinking funds are often represented as designated line items on a balance sheet, which helps you stay on track with each of your goals. The sinking fund strategy is typically best for short- and medium-term goals, rather than long-term savings goals that might be better suited for investmentment accounts instead of saving accounts. 

Examples of sinking funds

Sinking funds can be used for a variety of larger purchases you need to fund, which could be necessary living expenses or things you desire. Here are some common examples:

Sinking funds vs. emergency funds

If you already have an emergency fund, you might wonder why you’d need a sinking fund as well, or how the two differentiate. While sinking funds are typically smaller, with a set target amount and timeline, emergency funds are usually larger and aim to cover several months’ worth of living expenses. 

Sinking funds are intended for specific savings goals with a set target amount and timeline; the idea is to use them for specific goals and not spend the money on unrelated expenses. Emergency funds, on the other hand, act as a safety net for unanticipated financial emergencies like job loss or medical expenses, providing you with a financial cushion during difficult times. You can set up sinking funds for unpredictable expenses that you anticipate happening in the future, such as car repairs or medical needs, in order to reserve your emergency fund for things you have no way of foreseeing. Having both types of funds can help you tackle different financial situations.

Advantages of a sinking fund

Sinking funds can offer several benefits when it comes to managing your money. Here are some of the benefits of maintaining a sinking fund:

• Avoid going into debt for big purchases: Saving ahead for larger purchases and expenses like a vacation or a new car can help prevent you from incurring debt and racking up interest charges on the money you borrow. 
• Protect your emergency fund: When you have a sinking fund dedicated to specific goals, you’re less likely to tap into your emergency fund for those purchases, ensuring it remains available for true emergencies you can’t anticipate.
• Earn interest on your savings: Depending on the type of savings account you use to store your sinking fund, you can earn interest on your money, helping you reach your goals faster.
• Stay motivated to save: Having a clear goal and timeline can keep you motivated to stick to your saving habits, reducing the temptation for impulse spending.
• Reach your goals: With this type of savings strategy, you’re more likely to achieve your financial goals and enjoy the satisfaction of spending the money you’ve saved up.

How to set up a sinking fund in six steps

Creating a sinking fund is straightforward, but it requires planning and dedication if you want to be successful. Here are six steps to help you set up and start building your sinking fund.

1. Determine your savings goals

How much money you should keep in a sinking fund depends on your goals, income, and expenses. Start by identifying what you want to save for and how much you’ll need. Think about any upcoming expenses such as bills, gifts, travel, or debt repayment. You might have regular bills or purchases occurring with different frequencies and at different times throughout the year. Write down each specific goal and prioritize what’s most important for you.

2. Choose a target date

Establish a date by which you need the money for your savings goal. This date can be fixed or flexible, depending on the nature of your goal. For instance, if you’re putting aside money for a wedding, you’ll likely have a date set for your nuptials. If you’re saving for an unpredictable but likely expense like orthodontics, you might have a more flexible timeline, so you can choose a date by which you’d like to have the money available. 

3. Create a funding schedule

Your funding schedule will likely depend on two factors: when you’ll need each goal’s full amount and how much of your paycheck you can afford to put away. First, determine the amount you want to save for each goal. If you know exactly what it will cost, set a specific savings target. If the amount varies, estimate how much to save based on previous expenses and the average cost of what you’re saving for. Next, decide how frequently you’ll contribute to your sinking fund and calculate your contribution amount accordingly. Many people put money into their sinking funds every month so they’re building up their savings slowly but surely over time.

4. Incorporate savings into your budget

Review your budget and make sure your savings plan aligns with your income and expenses. Now that you’ve set saving goals, you might need to make some adjustments to your budget. If you don’t have enough in your budget to fund your goals, consider finding ways to trim your expenses or ways to add new income through a side hustle. If possible, you could also move your sinking fund’s target date or consider less expensive options. 

5. Decide where to store your savings

Before you start setting money aside, you may want to separate contributions to your sinking fund from your regular checking account. Here are a few possible account options:

• Savings account: Open a savings account specifically for your sinking fund. While not all savings accounts earn interest, keeping your sinking fund separate from your checking account can help you avoid accidentally spending what you’ve saved. Be aware that some accounts may have a minimum deposit requirement or require you to maintain a minimum balance.
• High-yield savings account: If you’re looking to maximize the growth of your sinking fund, consider a high-yield savings account. These accounts typically offer higher interest rates to help grow your savings, but they may have higher minimum deposit requirements and additional rules you’ll need to follow in order to earn the highest interest rate.
• Money market account: Money market accounts can often provide higher interest rates compared to regular savings accounts and offer check-writing capabilities. However, they may have higher minimum deposit requirements and certain restrictions compared to traditional savings accounts.
• Certificate of deposit (CD): CDs offer a fixed interest rate that’s often higher than other savings vehicles in return for keeping your money in the account for a set amount of time. If you know your target date and already have some funds to put into your sinking fund, a CD may help you take advantage of a higher interest rate. 

By selecting a separate account for your sinking fund, you can protect your savings from accidental overspending and potentially earn interest, helping your money grow over time.

6. Start saving

Once you’ve set up the account of your choosing and your sinking fund is incorporated into your budget, it’s time to start making regular deposits on the schedule that works for you. The more automatic you can make the deposits, the better. Setting up automatic transfers from your paycheck or checking account can help you stay consistent with your contributions and avoid the temptation to spend money that you intend to save. Don’t forget to track your progress and celebrate your milestones when you achieve your goals. 

How to manage multiple sinking funds

Having more than one savings goal doesn’t mean you need multiple savings accounts. With a spreadsheet or budgeting app, you can store all of your sinking funds within a single savings account and track your contributions separately. Many online banking tools and budgeting apps offer tools to make this process easy.

Alternatively, you can open individual savings accounts for each sinking fund, but keep in mind that this approach may become complicated to maintain with multiple goals and shorter timeframes. You might want to choose this strategy if you only have a couple of longer-term savings goals.

Reach your goals with sinking funds 

Sinking funds can help you tackle your savings goals with clarity, purpose, and a higher chance of success. Building healthy savings takes time, so remember to stay committed, make adjustments when needed, and take time to appreciate your progress as you make your way toward your goals. 

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Let’s explore the rules, risks, pros, and cons so you can feel more confident putting your money to work with a money market account.

In this article, we’ll cover:

• How money market accounts work
• Pros and cons of money market accounts
• Money market accounts vs. other accounts

How money market accounts work

Most financial institutions like banks and credit unions offer money market accounts. Here’s how they work:

• You earn a variable interest rate on the balance in your account.
• Your cash is fairly liquid, meaning you can easily withdraw money, with some limitations on frequency. This is to balance your ability to take out money with the interest rate offered.
• You can generally write checks and use a debit card to spend money from a money market account.
• As long as your financial institution is a member of the FDIC (most banks and credit unions are), your money is insured by the FDIC up to $250,000.  
• Money market accounts may require a minimum balance or annual fees.
• There are often limits on the number of withdrawals you can make each month. 

Money market account interest rates 

Money market accounts aren’t intended to build long-term wealth, but rather to store your idle cash in a place where it can earn more interest than it would in a traditional savings account. 

Interest rates vary depending on the federal interest rate and the financial institution where you open your account. As of August 2023, the average interest rate for traditional savings accounts was 0.42%, while interest rates for money market accounts can reach 5% or more. It’s common for interest rates to fluctuate over time, and some institutions offer higher interest rates for maintaining a higher balance in your money market account.  

The example below illustrates why you might use a money market vs. a traditional savings account to earn more interest on your savings.

Not to be confused with a money market fund

While the names are very similar, a money market account shouldn’t be confused with a money market fund. Both are relatively low-risk ways to save money and earn modest returns. However, a money market fund is a type of mutual fund that invests in high-quality, short-term debt securities and pays dividends that generally reflect short-term interest rates. And unlike money market accounts, the FDIC does not insure money market funds.

Pros and cons of money market accounts

On the upside, money market accounts can be a great way to safely grow your money more quickly than with a traditional savings account. Plus, you get convenience and accessibility similar to a checking account. The downsides are that money market account rules often limit the number of monthly withdrawals you can make and impose monthly fees that could eat into your balance.

Advantages of money market accounts include:

• Higher interest rates: The typically higher interest rates of a money market account mean your funds grow more than they would with a traditional savings account.
• Liquidity and accessibility: Convenient features like check-writing privileges, debit cards, and the ability to withdraw or transfer money when needed ensure that your funds are easy to access. 
• Safety and security: Because they’re typically insured by the FDIC, money market accounts are generally considered safe investments. Your funds will be protected if the financial institution fails. 

Disadvantages of money market accounts include:

• Potential fees: Monthly maintenance fees or charges for falling below your minimum balance requirement could eat into your savings. 
• Limited check-writing abilities: Most money market accounts place limits on the number of checks you can write each month. If you need more frequent access to your funds, the limited transaction volume may be a drawback.  
• Opportunity cost of higher returns: While money market accounts generally offer higher interest rates than savings accounts, they often don’t provide the same returns you might earn if you put your money in higher-yield investments like stocks, bonds, or mutual funds. 

Money market accounts vs. other deposit accounts

Money market accounts, checking accounts, savings accounts, and certificates of deposit (CDs) are all deposit accounts. They share some of the same security features and growth opportunities, but there are key differences in the rules and functions of each account.

Checking accounts

Checking accounts allow you to store and have easy access to your money for everyday transactions, but they usually offer far lower interest rates than money market accounts; many don’t pay any interest at all. Generally, checking accounts allow unlimited debit purchases, ATM withdrawals, and check-writing privileges as long as you have a sufficient account balance. Money market accounts typically limit withdrawals. 

Savings accounts

Like money market accounts, savings accounts allow you to deposit money, earn interest, and save for future financial goals. Both types of accounts offer a higher interest rate than checking accounts, though savings accounts tend to earn lower interest. Generally, you can withdraw funds at any time from your savings account, but you may face penalties if you exceed a certain number of withdrawals per month. Savings accounts do not typically provide check-writing or debit card options.

Certificates of deposit (CDs)

CDs are deposit accounts that hold a fixed amount of money for a specific period of time, usually between six months and five years. In exchange for keeping your money in the account for the full term, the issuing bank pays interest. When you redeem your CD, you receive the money you originally invested plus the interest. CDs tend to pay higher interest rates than money market accounts, but this is a result of their fixed terms. Because of these fixed terms, you’ll usually incur penalties if you withdraw the money from your CD before the predefined period expires.

Choose the path that fits your goals

A money market account could be a good idea if you’re looking for a low-risk option and want to grow your money for a short-term goal. This kind of deposit account can be a useful tool when you’re looking for ways to save money because instead of letting your money sit idle, you put it to work earning interest.   

And if you’re looking to grow your money for longer-term needs like retirement, Stash can help you start investing with confidence.

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The post What Is a Money Market Account? appeared first on Stash Learn.