What's A Brokerage Account and Why Would I Even Want One

A brokerage account is simply an account you open and fund so you can buy stocks or funds. It can be at TD Ameritrade, E Trade, Charles Schwab, Vanguard, Fidelity, or one of several dozen others. It is not a "retirement" account.

Regular brokerage accounts don't come with any inherent tax benefits, forcing you to manage your tax liability much more closely. Any interest and dividends you receive are generally taxable to you in the year in which you receive them, and if you sell an investment, you'll have to pay the resulting capital gains tax liability.

Yet there are a few things that make taxable brokerage accounts attractive. First, you can determine the timing of when you have to pay taxes on capital gains, because as long as you hold onto a stock or other investment, you don't have to pay tax on any rise in its value. Only when you decide to sell will capital gains tax liability come into play.

Another benefit of regular brokerage accounts is that there are no limitations on when you can withdraw money and for what purpose you can use it. You don't have to worry about penalties for early withdrawal.

Finally, if you choose a losing stock, a regular brokerage account will let you recognize a capital loss and earn a tax break from it. 

Why you want one is you need to have a place to put cash you might need later in a hurry. A place that your money sleeps while making you money. When you fund a brokerage account you do it with money you do not really need but want the option to use if needed. This type of money you want invested into equities paying a high, yet safe dividend. The best case scenario is you reinvest your dividends monthly, the worst case is you sell shares to spend the money. 

These dividends produce cash to spend or reinvest, or you can sell a bit if needed. My 10k brokerage account is invested into three bond funds paying a 7% dividend, $70 a month.

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Step 1. Create a buffer against trauma. It's called an Emergency Fund. For me it's 20k. Twenty thousand dollars insulates me from any unforeseen emergency.

Step 2. Create a Savings Account to pay property tax. For me it's currently $3,400 per year. It's a huge bill come every January and for me, I want 1.5 of what's owed sitting there waiting and it is part of the 20k allotment in our emergency fund. When the new bill comes and gets paid my priority shifts to immediately replenishing the "property tax" savings account to 1.5 of next years pending bill.

Step 3. Fund your IRA's and HSA. Step 3 has to happen after Step 1 and 2. 

Step 4. You have to get debt under control and eliminated through a dept.-reduction strategy.

Step 5. Create a 5 year plan where you dance with Steps 1-4.