Money 101

How much cash is too much cash to be in savings? true Cash is great. But can you have too much? And what should you do with it? Let’s find out. The main point: If you have too much cash in savings, you may be missing out on growth from stock or bond investments. Consider having cash in savings for short-term needs and putting the rest into investing accounts. Facts about cash in savings: Cash in savings is liquid, meaning it is easy to access when you need to withdraw it for spending. Cash in savings is also low risk, meaning your money should not decrease in value like stocks if you stay with FDIC insurance limits. But—cash in savings does not have the opportunity to grow compared to cash in stocks and bonds, especially when savings rates are not keeping up with inflation. Finding a balance: To strike the right balance between cash and investments for different needs, consider the following: Cash is a secure option for your emergency fund. Most experts recommend having three to six months of living expenses saved. Cash is the lowest-risk option but you can use a mix of bonds and stock too. Take a close look at your situation and save what feels right for you. After that, take a look at your extra cash. Cash and investments can also be right for your short-term goals. Having cash in savings can be wise for short-term goals (we consider anything under 12 months short-term). But depending on how you’re defining short-term and your risk tolerance, you may consider putting some cash for shorter-term goals in bonds and stocks. Investments can support your long-term goals. For most goals longer than 12 months, consider putting your cash into stock and bond investments. While investing involves more risk, stocks have had greater long-term gains historically than leaving your cash in savings. We have options for you: Open a Cash Reserve account if you’re looking for a secure way to save. It’s a high-yield cash account that helps grow your savings while offering FDIC insurance† up to $2 million ($4 million for joint accounts) through our program banks. Open an investing account for your long-term goals. We’ll help assess your risk tolerance, provide investment recommendations, and make it easy to access expert-built portfolios to get you closer to your goals.

Too many money goals? We can help. true When you have more than one, think in terms of importance, timeline, and the amount you need. In 1 minute Saving for big financial goals like retirement doesn’t have to mean letting go of your other goals. But prioritizing them is tough. How are you supposed to weigh something like a distant retirement versus a more immediate financial goal, like a honeymoon? Or a down payment on a home? Start by identifying all of the things you’d like to achieve. They might be big-ticket items you want to buy, experiences you want to have, or expenses you want to be prepared for. Once you’ve named them, estimate how much you’d need to reach each goal, and how soon you’d like to reach them. After you’ve clearly defined the goals you could save for, it’s time to choose which ones matter most to you. You might rank every goal or just narrow the list down to your top five to ten. Then you can calculate how much you’d have to save each month to reach these goals based on your timeline. From there, turn to your budget. Decide how much you can afford to save each month and apply it to your biggest goals first. We highly recommend turning on auto-deposit so you won’t be tempted to stop working toward your goals. Your financial goals don’t have to be set in stone, and neither does your plan. Over time, you may find that you can save more—or that you can’t save as much as you thought. Maybe it’ll take more or less to reach your goal. Or your priorities might change. That’s OK. With Betterment, it’s easy to set, automate, and adjust your goals. In 5 minutes In this guide, we’ll cover: Defining your financial goals Prioritizing your goals Deciding how to allocate your money Adjusting goals as needed Financial goals help you plan for the things you’d like to do with your money, but can’t afford to do right now. Like retiring. Buying a house. Sending your kids to college. Getting that dream car. Remodeling your kitchen. When you know what you want to do, you can estimate how much you need and when you need it. Knowing your goals also helps you choose the right financial accounts, so you can reach them sooner. But what happens when you have multiple financial goals? All of a sudden, it’s harder to know how much to put toward each goal. Thankfully, working toward one goal doesn’t mean you can’t reach another. Here’s how to set and prioritize your financial goals. Define your financial goals If you sit down and think about all of the things you’d like to do with your money, you can probably create a much longer list than you’d expect. Do it. It’s worth taking the time to write down every goal—because you might be forgetting something important! Some of your goals could be as simple as saving up for holiday gifts, as important as building a safety net, or as big as planning for retirement or long-term care. If it’s on your mind, put it on the list. Part of this process should involve estimating how much you’d need to save to reach each goal and when you’d like to reach it. Is it months away? Years? Decades? Will it take hundreds of dollars or hundreds of thousands? Each goal should have a timeline and amount. At Betterment, it’s easy to add this information every time you set up a goal. (And you can change it at any time.) Prioritize what matters to you Your financial goals are yours. This isn’t about what your parents want or what your friends expect from you. Whatever your goals are, prioritize them based on how important they are to you. Remember that ranking your goals doesn’t mean you won’t reach the ones on the bottom. For example, you shouldn’t be afraid to pay down debt and invest at the same time. This is just to help you think about which goals you care about the most. Once you’ve ranked your goals, your list might look like this: Pay off medical debt Build emergency fund Save for retirement Put a down payment on a house Remodel the bathroom You can include as many goals as you want. And in Betterment, you can add each goal to your account, whether you put anything toward it or not. Apply your budget to your list Now that you know how much you need to save, when you need to save it by, and which goals are most important to you, it’s time to see what you can actually accomplish. Using your estimated amount and your timeline (in investing, this is called your “time horizon”), calculate how much you need to save each month to reach each goal. It’s OK if this is more than you can afford to save right now. Putting the numbers in front of you with an ordered list helps you ask questions like, “Can I reach all of these goals on these timelines?” and “Which goal(s) am I willing to delay in order to make progress on the others? If you plan on investing to reach your goal, you should also consider how much you can expect to earn toward these goals with an investment account. Every time you set up a goal in Betterment, we’ll handle this part for you. You can see how achievable your goal is based on how much you put toward it. Automate your financial goals The best way to make sure you reach your goals? Automate them. Don’t make the mistake of putting your goals on pause. Set up recurring deposits for each goal with the amount you’ve set aside for them, and the right amount automatically goes to the right goal. This makes it easy to budget around your goals, and you won’t accidentally miss a month. The strategy is often called “paying yourself first” because you’re putting money toward your highest priorities before spending it on anything else. Want to start working toward your financial goals? Set up a goal with Betterment, and see what you can achieve.

The five types of investing accounts you need to know true From 401(k)s to 529s, investment accounts vary in purpose. Learn which are better suited for your long-term financial goals. Investment accounts are valuable tools for reaching your financial goals. But they’re not all the same. You have choices to make, but we’re here to help. Why it matters: Choosing the right investment accounts could mean reaching your goals ahead of schedule. Conversely choosing the wrong accounts could mean you don’t have the money when you need it. Know your goal: Whether you’re simply trying to build wealth or you have a specific goal in mind, knowing what you want to do will guide what account type you choose. Three of the most common goals are: Saving for your retirement Saving for a major purchase such as a house Saving for your own or a loved one’s education The big five: Once you know your investing goal, one of these five types of accounts should likely do the trick: IRAs 401(k)s Health Savings Accounts (HSAs) Individual (or Joint) Brokerage Accounts 529 plans Saving for retirement? Look at these tax-advantaged accounts: IRAs are used to save for retirement, offering unique tax advantages. Unlike a 401(k), your contributions don’t automatically come from your paycheck and the annual contribution limits are lower, about three times lower in fact. An IRA can be an excellent choice. They also may be subject to penalties for early withdrawals. 401(k)s are retirement accounts offered by employers, providing tax advantages similar to an IRA. Contributions are automatically deducted from your paycheck and sometimes employers match a percentage as an added benefit. Keep in mind, you’ll usually incur penalties for early withdrawals. HSAs are designed primarily to help individuals pay for health care costs but once you turn 65, you can use them for anything you want without incurring penalties. Plus, you enjoy triple the tax advantages. Things to know about retirement investing accounts: There are limits: Retirement accounts have different contribution limits (the amount you can deposit each year) based on account type. If you’re looking to save an uncapped amount each year, a brokerage account can be used after maxing out retirement accounts. Did someone say tax-advantaged? The tax advantages of 401(k)s and IRAs come in two flavors: Roth and Traditional. A Roth account may be better if you think you’ll be in a higher tax bracket when you retire. But if you expect to be in a lower tax bracket when you retire, a Traditional retirement account may be better. (Exciting Disclaimer: Always consult a licensed tax advisor.) Did someone say triple-tax-advantaged? With HSAs, contributions, potential earnings, and withdrawals (with a few key stipulations) are tax-free. This is what we mean when we say HSAs enjoy “triple” the tax advantages. The more you know: You can have a 401(k), a Traditional IRA, a Roth IRA, and an HSA at the same, so you can contribute as much as possible toward retirement through tax-advantaged means. Saving for a major purchase? Check out this account: Individual (or Joint) Brokerage Accounts let you purchase stocks, bonds, exchange-traded funds (ETFs), mutual funds, and other financial assets. A joint account is commonly used by married couples to consolidate their investments. Brokerage accounts lack tax advantages but are available to virtually anyone to invest any amount. Saving for education? Then try this account: 529 plans are an ideal choice because earnings are tax-free, as long as you use them for qualified education costs. You can withdraw from the plan as needed for education-related expenses. Hot Tip: Stash your cash until you’re ready. Choosing the right investing account can take some thought. While you're deciding, a high-yield Cash Reserve account can help you earn more from your cash until you’re ready to invest.