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Is your money saved in vacuoles or mitochondria?
Recently I talked about potentially seeing higher inflation in the near future. Higher inflation means our money is worth less and knowing whether or not your money is saved in vacuoles or mitochondria will either prevent you from “losing” money by keeping pace with inflation or downright beat it and earn way more.
Wondering what they are and how they relate to personal finance? Let me explain.
Related Article: Higher Inflation – What Does This Mean For All Of Us?
Vacuoles and Mitochondria
Our bodies are made up of trillions of cells. These cells are made up of many parts called organelles. Not all cells are the same – plant and animal cells are different in certain ways, but both types of cells have vacuoles and mitochondria. Below you can see what they look like in a cell.
Vacuoles help our cells store and manage waste – yes, our cells also have waste. Anything that is stored in here, in essence, is wasted. When it comes to finances, any money stored in an account that is a vacuole is essentially a wasted opportunity.
Mitochondria are the “powerhouses” of our cells. They provide our cells with the energy “currency”, called ATP (Adenosine Triphosphate), through a process known as cellular respiration. This allows our cells to go to work and keep us, well, alive. This is why we need to eat and breathe – our cells need oxygen and food to give us energy to live and function.
Anything that goes into mitochondria is used to produce ATP. When it comes to personal finances, money that is placed in an account that is a mitochondrion is automatically put to work to make you more money. Money that is placed in vacuoles, on the other hand, will remain the same and cost you an opportunity to use that money to make more money.
And who doesn’t like to make more money, especially when it happens automatically without having to work for it?
So, let’s take a look at which accounts are vacuoles and which are mitochondria.
Accounts That Are Vacuoles
Vacuoles are accounts that provide you with no return by having your money stored in them. This is basically your bank accounts that have little or no interest rate. Keeping your money in these accounts prevents you from having the opportunity to automatically earn more money. And that’s exactly where my money was kept – in a vacuole.
For the longest time, I had kept most of my money in my checking account that had no interest and a little in a savings account that had an interest rate of 0.01%. At first, I didn’t even realize I was getting any additional money because the amount was so small. However, a few years ago I took a closer look at my account statement and my eyes lit up.
I was getting 4¢ added to my account balance every month.
Right then and there was the moment I first experienced what it felt like to have money automatically given to me without having to work for it. I was so happy to see I was getting passive income. The dopamine was coursing through my brain. I thought I had found the key to wealth and all I had to do was save and put more money into the account.
And that’s what I did. I saved as much as I could. Month after month I put as much as I could into it and the end result was shockingly disappointing. To my surprise, I was now getting 5¢ each month. That’s when I found out the interest rate was 0.01% for the year and realized it would take me an eternity to earn enough money to have any significant gains from that interest rate. No way was I going to wait that long, not that I can wait that long anyway, but that’s not the point!
Then enter the mitochondria and everything changed completely. I realized there are accounts out there that gave significantly better returns and all I had to do was to transfer my money into them and allow my money to go to work. So, what are these accounts?
Let’s dive into them.
By the way, the bed or safety box you use to store your cash is also a vacuole. You will “lose” money over time as inflation steadily erodes the value of your money. If you need to have some cash on you, try keep a small stash so you can use the rest to make you more money.
Accounts That Are Mitochondria
Accounts that are mitochondria are those that provide you with ATP:
- Assets – the account is an asset that puts money in your pocket
- Taxes – the account provides you with tax savings and advantages
- Pay – the account pays you to have money in it
Assets and Pay are similar, but there is a subtle difference. Accounts that pay you to have money in it are essentially high-yield savings accounts. They pay you interest for banking with them. Assets like investment accounts do not pay you interest, but instead allow your money to grow. Certain investment accounts give you tax benefits. The most familiar one is the 401(K), which allows you to put tax-free money in it now and pay taxes later. Doing this reduces your taxes and lets you keep more of your money now while also allowing your money to grow.
High-yield Savings Account
This is perhaps the simplest mitochondrial account that anyone can open and always get paid for having money in it. A high-yield savings account is a type of savings account that has an interest rate that is 20 to 25 times higher than the national average of a standard savings account. The difference in earnings is quite significant.
Using my savings account annual percentage yield (APY) of 0.01% as an example, you will earn 50¢ over the course of a year if you have $5,000 in the account. If you instead put that $5,000 in a savings account earning 2% APY, you would earn $100. That is 200x more! And the more money you have in there, the more you will earn.
Interest rates have recently plummeted to about 1% APY due to the ongoing pandemic. That is still better than keeping your money in an account with an APY of 0.01%. Here are the two high-yield savings accounts that I personally use.
Capital One 360 Performance Savings currently has an APY of 0.8%. Back when I first opened it in February, the APY was 1.8%, but has since been lowered due to the pandemic. It is a great account as there are no fees and minimums to maintain the account. One of my favorite features is you can create multiple accounts and assign a nickname to them depending on what you are saving for (e.g. wedding, gifts, vacation, etc.).
T-Mobile MONEY is a checking account, but I use it for both checking and savings. I recently opened this one as it still offers 4% for the first $3,000 and 1% for anything above $3,000. You have to be a T-Mobile customer to get the 4%, though anyone can open this account and get an APY of 1%. With an APY of 4% on the first $3,000, you would earn $120 each year just by having money saved in the account.
That’s like someone giving you $10 a month or a lump sum of $120 at the end of the year for free with no strings attached. Who doesn’t want that?
As with any account, the interest rate is subject to change at any time. Also, earnings are taxed at your federal income marginal tax rate.
Related Article: 5 Best Bank Accounts To Earn Free Money In 2020
Tax-advantaged Investment Accounts
Tax-advantaged investment accounts are those that give you a tax benefit for having money invested in them. This is either tax-deferred or tax exempt. With tax-deferred accounts, you invest with tax-free money and then get taxed on that money and all of the earnings when you withdraw. Tax exempt accounts are the opposite where you invest with after-tax money and your earnings are completely tax-free when you withdraw.
I currently invest in my employer’s 401(K) plan, which is a tax-deferred account. I also have money invested in a Roth IRA with Fidelity Investments, which is a tax-exempt account. I invest in both types of tax-advantaged accounts to get the best of both worlds. No one can predict what taxes will be like in the future, so a Roth IRA helps shelter my money for potentially higher tax rates in the future while my 401(K) allows me to save on taxes now and grow my money tax-free.
By investing in those accounts, you are investing in the stock market. The stock market has historically been the best money-making vehicle and the fastest way to grow your money. Over the 20th century, the average annual stock market return was 11%. The average rate of inflation is about 3%. Factoring inflation, we can expect an average annual return of 8%.
Other tax-advantaged accounts include:
- Roth 401(K)
- Traditional IRA
- Health Savings Account (HSA)
Ordinary Taxable Investment Accounts
Although ordinary brokerage investment accounts do not provide any tax benefits, they are also considered mitochondria because they are assets that provides you with more money. The difference here is you invest with after-tax money and all of your gains are taxed when you sell your investments. With a 401(K), for instance, you pay taxes only when you withdraw your money.
These accounts are good if you already are investing close to the maximum on your tax-advantaged accounts and have extra money lying around that you want to invest. Your money is more liquid in these accounts, meaning you can access this money easier – you can access your money in a 401(K) and Roth IRA when you have reached the age of 59½, though there are exceptions to this rule.
I use Robinhood to invest my extra money as they offer free trading of stocks and funds. Although I can also use Fidelity for this, I started with Robinhood and have had no problems with it so I just stuck with it. There are many alternatives to Robinhood including WeBull, TD Ameritrade, Charles Schwab, Betterment, and many more. You can likely find that the bank you use also has a brokerage account.
Final Thoughts
Keeping your money in mitochondrial accounts is a good way to increase your income and grow your money. Otherwise, your money is losing value because of inflation. By putting your money into mitochondrial accounts, you give yourself the opportunity to keep pace with inflation, if not downright beat it, and earn money without having to work for it.
So, is your money saved in vacuoles or mitochondria?
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