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Financial Accounts Series, Part 1: Accounts You Need Now

Updated: Jan 15, 2023


If you ever found yourself wondering whether your finances are well-organized and prepare you for the demands of life, the Phippen Tax & Financial Services Financial Accounts Series is for you! The accounts outlined below are the three accounts we recommend opening first. They organize your personal financial system and help you weather financial emergencies:



1. Checking Account


Think of your checking account as an airport landing strip for your money. It is the central hub for all income and money received -- the place where money lands before it is distributed to other accounts. If you work for someone other than yourself, your employer sends money to your checking account. If you are self-employed, your personal checking account is where you receive your salary, but you may also have a business checking account to serve as the central hub for your business.


Why do I need a checking account? The checking account keeps your finances organized. By having a hub, you can more easily track all income coming to you, thus facilitating budgeting or other money tracking you may do. Additionally, you likely have bills that cannot be paid by credit card or a cash app—like your rent or mortgage. You can pay these bills directly from your checking account.



2. High-Yield Savings Account


The high-yield savings account is the location of your emergency fund. An emergency fund is exactly what is sounds like: It is a pool of money that you save to use during an unpredictable emergency. Unpredictable emergencies are not spending more for dinner than you planned—they are losing your job or replacing pipes in a flooded home.


The high-yield savings account is the ideal location for the emergency fund because (a) it is a safe location where your money will not decrease in value, but (b) your money gains interest, helping it better keep up with inflation. Particularly in the current environment, the interest rates may not entirely account for inflation, but they are rising rapidly in recent months.


Why do I need a high-yield savings account? The high-yield savings account is the home of your emergency fund and provides an environment where you can contribute the money and forget about it, knowing it will grow over time until you may need it for an emergency.



3. Health Savings Account


The health savings account (HSA) is like an emergency fund for your health. Unfortunately, not everyone is eligible to open an HSA: Only those with a high-deductible health plan can contribute to an HSA. If you are young and have no expensive chronic conditions or other foreseeable health issues that make another kind of health plan beneficial, you are likely at the right stage of life to choose a high-deductible health plan and open an HSA.


Initially, the HSA is a safety net for your health. You contribute to the HSA with pre-tax dollars, meaning the amount is removed from your gross salary before taxes, and every cent of the contributed money goes to the HSA without any going to taxes. If you use the money for qualified medical purchases, the money is also not taxed when used. The HSA lets you make medical purchases completely tax-free! Finally, you can invest your HSA as you see fit, meaning the HSA can serve as a powerful investment vehicle with unique tax benefits to fund your retirement.


Why do I need an HSA? In the short term, you need it to protect yourself from any health emergencies. If you are lucky enough not to experience any, you can use an HSA to invest for retirement, or expected health expenses of old age, with a pre-tax investment.


About the Financial Accounts Series: The Financial Accounts Series is a four-part series discussing financial accounts that can improve the health of your finances. Over the next three weeks, the Phippen Tax & Financial Services team will provide a deep dive on each of the accounts listed above before releasing Part 2, Accounts You Need Next. If you would like to seek additional guidance about your personal finances or the specific organization and composition of your financial accounts, please contact Patrick Phippen or complete a new client form if you have not worked with Patrick in the past.

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