The road to financial independence is a long one. If I am going to be financially independent someday—that is, not relying on a steady income stream for my day-to-day expenses (which is frequently referred to as “retirement”)—I will need to set aside a good amount of money.
In addition to emergency savings and retirement saving, you should also stash away 10% or so for long-term investing. The markets tend to go up on average, though they are volatile, and you shouldn’t miss out on a chance to invest in growing companies and countries. Let the magic of compound interest make you money.
You will want a brokerage account for this bucket. The easiest way to fund this account is through an automatic transfer from your bank account, which you can set up to send money to this account from your checking every month after your paycheck hits. Alternatively, you can have your paycheck deposited into this account and can funnel money to your checking account, giving yourself a stipend to live on. Whichever way you choose, automating the process will ensure that you do actually put away money. Having your paycheck deposited into your brokerage account and funneling some of that money to your checking account ensures that you are saving money first, instead of spending it and hoping some is left over for saving.
Of course, if you need the money before retirement, it is yours, and you can take from this account if need be, but the point is to already have an emergency fund set up for quick needs. You could combine your emergency fund and your long-term saving fund, but if you do, make sure you are saving both for emergencies and also for big future purchases. I find that if I keep separate accounts for most of these buckets it helps me keep them straight.
Think of this long-term investing account as extra cushion when you retire in addition to your specific retirement accounts, and saving for “big ticket” items, like a down payment on a house, buying your next car, or routine replacement of old appliances. Remember to keep adding money into this account once you’ve bought the house or the new stove. Your future self will appreciate having money to live comfortably.