Yep, it’s true. Despite media reports, there is a large swath of the US population that actually lives BELOW their means. And those people just slowly grow a cash cushion until they wake up and realize that maybe they have saved a little too well for a rainy day.
A question I get a lot is how much is too much cash?
It varies, but for a family with one breadwinner or single person, I recommend you start with 6 months expenses kept in a savings account.
Add to that any expenses you anticipate in the next 18 months. This could be vacation, car down payment, adding a deck to your back yard, home down payment…you get the drift.
After that, you can be investing for a sunny day. If you’ve maxed out the contributions to your retirement accounts or IRAs, open a taxable account (just a regular brokerage account without tax benefits or extra rules). Invest the excess cash in a diversified mix of investments that are tax efficient and low cost. This could grow (with some bumps along the way) more than the puny savings account interest you are getting.
Now don’t get all aggressive on me.
Your emergency/use soon money shouldn’t be invested for growth. Growth comes hand in hand with risk of loss. You don’t want to lose your job just as the stock market is getting hammered and there your emergency fund is less than 6 months expenses. A savings account or money market, boring as they are, is the right place for your cash stash.
Your financial adviser can help you with investment ideas or hop onto my website and set up an appointment. I can help with just this sort of thing.
Happy saving!
