What To Do With Extra Cash

I often get the question – “I have some cash in my account….what should I do with it? Should I invest it? Contribute more to my retirement plan? I need to do something with it.”

It is like a little extra cash in someone’s hands is like a hot potato. People can’t hold it. They have to throw it around and do something with it. There’s a sense of urgency, almost anxiety, when it comes to extra cash because people want to do the “right” thing.

This is where I often tell people to take a deep breath and slow down. Then, I tell them to think about their goals, short-term and long-term and prioritize them. Probably the most important short-term goal for anyone should be to have an adequate emergency fund to cover at least 6 months of living expenses.

Another important question is do you have enough money set aside to cover your annual expenses (car registration, insurance premiums, property taxes, etc)? Do you have a retirement account at work and, if so, do you fully fund that account? Do you have any big expenses coming up in the next to years for which you need to set aside cash (buying a car, buying a house, car repairs, big vacation, going back to school, getting married, etc.)? If you have cash to cover all the situations described above and you still have cash left over that is burning a hole in your pocket, good for you!! You are in a very enviable position.

If you do have all the basics covered, then it is time to look at the rest of your goals and decide how to best allocate you money. Going through the questions above is really the best way to provide you with peace of mind that you are doing the “right” thing with your money and making some real progress towards your goal. You feel like you are doing something and you are using the money in a way that is right in line with your goals. I use a “Savings” worksheet that divides my savings into different buckets based on my goals so that I know that I am making progress towards my goals. Anyone who would like a copy of my savings worksheet, please do not hesitate to e-mail me.