After monthly expenses have been paid you may be left with excess cash in your checking account. Many individuals allow these funds to build up at the bank without a second thought. In this low-interest rate environment, rates offered by many banks aren’t keeping pace with inflation. It’s important to have a safety net of resources should an emergency arise, but at what point are you sitting on too much cash?
Setting targets for cash balances and having a plan for excess cash will help prevent unnecessary accumulation of resources in low yielding accounts. The following will help you determine if you are “cash-heavy” and offer options for any surplus.
- Build up a buffer of three to six months of your expenses in a high-interest savings/money market account.
- Pay off any existing high-interest rate debt.
- Consider investing in a brokerage account once you have established an adequate emergency fund and you have no high-interest rate debt to worry about.
Contact our office with questions.