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Consider This Your Financial Roadmap

Separating your money into the categories of now, soon, and later can help you see a full picture of your financial roadmap.

Articles by Nick Holeman, CFP®
By Nick Holeman, CFP® Head of Financial Planning, Betterment Published Dec. 09, 2019
Published Dec. 09, 2019
4 min read

When you think about your life, you probably first look back at several milestones and life events that have already passed you by. You might also look forward and dream about what outcomes the future still has in store for you—whether it be planned or unplanned.

Your financial roadmap is no different. No matter your age or what you’ve already accomplished, you’ve still got more places to go. The key is to make sure you’ve set up the proper accounts along the way so that you can maximize your money. This usually means having a few different types of accounts, each with just the right mix of tax benefits, liquidity, risk, and growth potential for your unique needs.

Separating your money into the categories of now, soon, and later can help you determine where you are, and what areas you need to set your sights on in the future. It’s important to see the big picture, especially if you’re still early on in your financial journey. If you aren’t, don’t stress—it’s never too late to take positive financial steps.

“Now” Money

First and foremost, is money that you plan to use now—generally within the next 12 months, so you need to be able to access it quickly. For this reason, you likely don’t want to subject this money to very much risk.

Examples

  • Day-to-day expenses
  • Major purchases within the next 12 months
  • Emergency funds

Account Types

Three common account types for your “now” money are checking accounts, savings accounts and money market accounts. Usually these account types are FDIC-insured and generally are not at risk of decreasing in value.


Timeline Examples Account Types
Now Money 0 – 1 Year
  • Day-to-day expenses
  • Upcoming major purchases
  • Emergency funds
  • Checking account
  • Savings account
  • Money market account

How to Maximize

The easy access and low-risk of these accounts usually means they don’t have very high expected growth. But there are ways to still maximize your “now” money.

  1. Make sure your money isn’t getting hit with unnecessary fees.
  2. Make sure your money is earning a competitive interest rate.
  3. Don’t hold on to more “now” money than you actually need.

If your current situation doesn’t live up to these standards, consider switching over to different accounts. Also consider moving any excess cash you have to a different account, which we’ll discuss next.

“Soon” Money

The second type of money on your financial roadmap is your “soon” money. This is money that you don’t need right away, but you also don’t want it to be locked up all the way until retirement. The timeline here could be anywhere from two to 20 years.

Examples

  • A downpayment for a home
  • You child’s college fund
  • Savings for a new car

Account Types

Since you don’t plan on using this money right away, you should consider investing it instead of keeping it all in cash. Investing can make your money work harder for you by attempting to beat inflation and helping you participate in the global economy.

The cash accounts listed in the “now” money section above can’t hold investments such as stocks, bonds, or ETFs, so you’ll need to open an investing account. Some common types of investment accounts are individual brokerage accounts, joint brokerage accounts, or 529 accounts for college savings.


Timeline Examples Account Types
Now Money 0 – 1 Year
  • Day-to-day expenses
  • Upcoming major purchases
  • Emergency fund
  • Checking account
  • Savings account
  • Money market account
Soon Money 2 – 20 Years
  • Home downpayment
  • Car savings
  • College savings
  • Individual brokerage account
  • Joint brokerage account
  • 529 account

How to Maximize

Investing may sound intimidating at first, and that’s okay. Higher expected returns do come with more ups and downs along the way. Consider these tips to help control the risks associated with investing your “soon” money.

  1. Diversify your money across many different types of investments.
  2. Start slowly and invest your cash a little bit at a time.
  3. Steadily decrease your risk as the end of your timeline gets closer.

If you are ready to start investing, consider opening an account and making regular deposits to it. Just remember—try not to classify all of your extra cash as “soon” money, because there’s still one more type of money you should be paying attention to.

“Later” Money

Last but not least is your “later” money. This is money that you don’t plan on tapping into until much later in your life. And we mean much later. Even though it might be hard to imagine your older self now, you will get there someday, and it’s important to prepare for it now.

Examples

  • Retirement
  • Long-term care

Account Types

There are many types of accounts to choose from for your “later” money. Some of the more common ones are IRAs, 401(k)s, and TSPs. Each of these tax-advantaged accounts are available as both Roth or Traditional, which have different tax treatments.

However, in order to benefit from any applicable tax breaks, you usually have to wait until age 59 ½ to withdraw the funds. That’s why these accounts are not ideal for either your “now” or “soon” money.


Timeline Examples Account Types
Now Money 0 – 1 Year
  • Day-to-day expenses
  • Upcoming major purchases
  • Emergency funds
  • Checking account
  • Savings account
  • Money market account
Soon Money 2 – 20 Years
  • Home downpayment
  • Car savings
  • College savings
  • Individual brokerage account
  • Joint brokerage account
  • 529 account
Later Money Age 59 ½  and beyond
  • Retirement
  • Long-term care
  • Traditional or Roth 401(k)
  • Traditional or Roth IRA
  • Traditional or Roth TSP

How to Maximize

Below are a few tips to help you manage your “later” money.

  1. If you have an employer match, it usually makes sense to take full advantage of it.
  2. You can contribute to both a 401(k) and an IRA in the same year.
  3. Having a mix of both Roth and Traditional accounts can provide you with tax diversification.

If you want to start saving more towards your “later” money, opening an IRA is fast and easy. Additionally, if you have old retirement accounts from previous jobs, you may be able to save fees and manage your assets more easily by rolling them over. You always have the option of rolling over 401(k)s and IRAs into your Betterment account and becoming more consolidated.

Now, Soon, or Later? You’ll need them all.

Throughout your life, you’ll have many financial milestones. Some may already be happening right now. Others may happen soon. And still others may not happen for decades.

It’s important to have a full financial roadmap that spans all your needs for now, soon and later. That usually means having multiple types of accounts that have the right mix of tax benefits, liquidity, risk and growth potential for your unique needs.

We can help you build your own financial roadmap by offering multiple types of accounts.

Click on each link above to learn more about the different types of accounts that you have right at your fingertips through your Betterment account.

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