On my first day at a restaurant job 10 years ago, a coworker gave me some savings advice that's helped me pay taxes, save for retirement, and make major purchases
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- In 2011, I started a new job at restaurant in New York City. My coworker, Todd, showed me the ropes on my first day and gave me some advice: Save 20% of your tips every night to pay taxes.
- I knew I needed a separate savings account to store that money, so I opened an account with Ally. I appreciated its high APY and transparency.
- A decade later, I'm still using Todd's advice: Putting money aside throughout the year to pay for major expenses and fund financial goals. And I still have my Ally account.
- See Business Insider's picks for the best high-yield savings accounts »
It's still hard for me to believe that there was ever a time I didn't keep my cash in a high-yield savings account, or HYSA. With every passing year, I was leaving money on the table, missing out on interest payments while my money stagnated in my checking account or the standard savings account offered at my bank.
But all of that changed when I opened my first HYSA, an Online Savings Account at Ally. It offers a competitive annual percentage yield (APY), refreshing transparency, and has served me so well that I continue to sing its praises a full decade later. It's particularly ironic considering that when I first opened the account, I assumed it would be a temporary solution for a temporary problem.
Getting a financial lesson on my first day at a new restaurant job
Here's the backstory: I had just started a new serving job at a seafood restaurant in New York City, and for my very first training shift, I was paired with a senior server named Todd. In between showing me how to use the point-of-sale system and explaining the side work I'd be expected to complete every shift, Todd had some financial advice to bestow as well.
The restaurant group we worked for kept track of our tips, but didn't withhold taxes for front-of-house staff, he warned — we were expected to do that ourselves. At the end of each shift, servers would bring their paperwork to the bar to be tipped out from the register, and leave the restaurant with every (pre-tax!) dollar they'd earned that night.
It was tough to avoid spending the money once it was in your pocket, Todd acknowledged, but the trick was to treat that money like gross earnings instead of net income. Or else I could find myself in dire straits come tax season. He told me plainly that I could probably expect to owe between $5,000 and $10,000 every year, and that if I didn't have that amount on hand (I did not), I should be setting aside 20% of my tips every single night in preparation.
To drive the point home, he pointed out another server who was so behind on her taxes from years prior that she literally couldn't afford to work anywhere else. Periodically, she'd come to work complaining that the federal government had garnished her wages to go toward back taxes. I was officially scared straight.
Setting up my tax-savings system
That very night, I came home and started researching savings accounts. I knew that if I truly wanted to set money aside, I'd need to put it somewhere that I couldn't see it every day. That meant a new savings account. And since I didn't relish having to find another ATM within walking distance of work, I knew that online was probably the best option.
Ally stood out right away for its good reputation, easy balance transfers, and high interest rates. Most importantly of all, there was no minimum deposit requirement. I opened an account, and set up an Excel spreadsheet where I could input my nightly restaurant earnings in one column, and have it automatically calculate 20% of that number in the other. At the end of each week, I'd total up the numbers, and move the whole estimated tax amount into my Ally account.
The whole process took about a minute a week, after which I'd forget all about it for another seven days. I limited my spending to the amount in my checking account, and the number in my Ally account kept growing, unchecked. The process worked so well, in fact, that I'd actually saved more than I needed for my taxes. But instead of moving that money back into my checking account, I left it where it was; I'd gotten used to the higher interest rate and I was loath to give it up.
Why I've kept my Ally account open for the last decade
A decade later, I've left that job, started a new career, moved cross country, and opened new HYSAs — like a Protected Account at Simple that lets my partner and me work toward joint savings goals. But through it all, my original Ally account has hung on.
Interest rates will always go up and down, of course, and they feel pretty much rock bottom right now. (At the time of this writing, I'm earning 0.80% APY at Ally, down from 2.25% earlier this year.) But frustrating rate drops aside, what I really appreciate about the institution is its transparency. I get an email every time my rate changes, and in between those emails, I never have to dig through the fine print to see what my money is earning.
My APY is always listed right in the front-page snapshot of my account, next to my account balance and my year-to-date interest earnings. So any time I start to get tempted to pull my funds, it's an instant reminder of the earning potential I'll be missing out on if I do. That helps me think of my Ally account as what I call second-tier savings — the money I really, really don't want to touch.
Throughout the year, I funnel monthly transfers into my Simple account, saving up for big purchases or maxing out my Roth IRA. Once that money is all accounted for, I take whatever's left and move it over to Ally, and start the whole cycle over again.
I'm basically using the same process that my coworker Todd encouraged me to set up all those years ago — setting aside money throughout the year for major bills and financial goals — and I imagine I'll be sticking to it for many still to come.
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