Here are the 4 accounts you need to build and sustain wealth in America

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According to the Federal Reserve’s latest Survey of Consumer Finances, the average U.S. household had a net worth of $1,063,700 in 2022. But the median net worth was just $192,000, which tells us that the first number is skewed by the relatively small number of high-net-worth families.

The good news is that, with the right strategy, it’s possible for many households to grow wealth over time. But that’s going to require the right combination of accounts — ones that give you access to cash for short-term expenses while letting you set money aside for future goals and big purchases.

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With that in mind, here are four accounts you should set yourself up with — and how to use each one to get the most out of your money.

Checking account A checking account is what you should use to pay your regular monthly bills. Your rent or mortgage payments, car payments, groceries and utility bills, for example, should all come out of your checking account. And to make your life easier, you should arrange for your employer to deposit your earnings directly into your checking account, so you get access to that money as soon as it’s available.

Since checking accounts typically pay very little interest, you don’t want to keep too much money in yours. But it’s a good idea to have a small cushion, beyond what you need for monthly bills, to cover any small extra expenses. Some checking accounts require a minimum balance, so be sure to keep yours above this line to avoid a fee for having your account balance dip too low.

High-yield savings account It’s important to always have money on hand for emergencies, such as unexpected home repairs or periods of unemployment. As a general rule, aim to save enough cash to cover three to six months of living expenses. But know that some financial experts, including Suze Orman, recommend having 12 months of living expenses set aside for emergencies if possible.

The best place for an emergency fund is a high-yield savings account. This way, you can earn interest on that money while you’re not using it, but you can also access it at any time. A savings account is also an appropriate place to put cash you’re saving for a near-term goal, such as putting a down payment on a car or house.

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Investment account While a savings account is the best place to park cash needed for emergencies and short-term goals, an investment account is best for long-term goals, such as paying for children’s college or your own retirement. Your choices here include a taxable brokerage account, an IRA (individual retirement account), or a 401(k) plan, if your employer offers one.

The benefit of investing your money is that you’re likely to earn a larger return over time than you would in a savings account. While some high-yield savings accounts pay 4% or a bit more today, the S&P 500’s historical annual average return, which accounts for good years and bad, is above 10%.

You can take a few different approaches to investing your money. If you’re comfortable researching stocks, you can buy shares of companies across a variety of market sectors (for example, some bank stocks, tech stocks, health-care stocks and so on).

If you don’t like the idea of choosing your own stocks, a good approach is to load up on broad market ETFs (exchange-traded funds). A total stock market ETF tracks the performance of an entire exchange, such as the S&P 500, which includes 500 of the largest companies listed on U.S. stock exchanges. This strategy has been recommended for typical investors by giants such as Warren Buffett.

Health savings account Medical debt can turn into a huge problem for Americans — even those with insurance. An analysis by the Kaiser Family Foundation, citing data from the Census Bureau’s 2021 Survey of Income and Program Participation, found that people in the U.S. owed a collective $220 billion in medical bills, with roughly 14 million of them owing more than $1,000.

A health savings account (HSA) is designed to make it easier to set funds aside for health-care expenses. HSA contributions don’t count toward taxable income up to an annual limit set by the IRS each year, and unused funds can be invested, so the money in the account grows. Investment gains are tax-free, and so are withdrawals used for qualifying medical expenses. And because HSA funds don’t expire, there’s no pressure to use them up within a certain time frame.

To qualify for an HSA, your health insurance plan must meet certain requirements that change yearly. For 2024, your plan needs to have a minimum $1,600 deductible for individual coverage or $3,200 deductible for family coverage. Your plan's out-of-pocket maximum must be no higher than $8,050 for individual coverage or $16,100 for family coverage.

It may be possible to qualify for an HSA in the future, even if you aren’t eligible now. Check the requirements against your health plan each year to see if this account is available to you.

What to read next This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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Here are the 4 accounts you need to build and sustain wealth in America

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