Where should I Save my Excess Cash?

In our world today there are more opinions that ever about what to do with your extra cash and we have found is that it is  easy to get overwhelmed or become unsure as to where you should save money and how you should do so. We recognize that everyone has a different situation when it comes to how much money they have available to save for various goals, but there are some basics that apply to almost all of us. Here are our top tips and tricks to make achieving your goals that much easier!

1. Save 3-6 Months of Expenses In Cash  We always mention this one because it's the cornerstone of every financial plan! Having that emergency fund provides you the financial peace of mind relieve stress about the water heater breaking or your car having mechanical issues. These cash reserves in turn allow you to avoid touching your investment accounts when those unexpected expenses arise.
2. Contribute to Your Employer-Sponsored Retirement Plan Every client we work with has unique goals that generally require a varying financial approach. The general rule of thumb with your employer retirement plan is to contribute enough to receive 100% of the company match. After you have done this, you need to assess a few things to determine if you should contribute more to your retirement plan or direct your funds to another investment vehicle:

• • What Are Your Goals?  Do you need to buy a home, pay off some debt, save for a new car, etc.? The answer to that question will make it very clear what your top priorities need to be for your savings.

• • Do You Have High-Quality or Low-Quality Investment Options In Your Plan?  Over the years we have reviewed thousands of employer sponsored retirement plans.
    • Roughly 75% of those plans have been average or slightly above average – in these plans you typically have 10 or 15 investment funds to pick from and pay fees that are north of 0.50%.
    • About 10% of the remaining 25% of plans were of the highest quality – low cost, high quality fund options.

• • • The remaining 15% of plans were significantly below average – the funds had high internal costs, some “advisors” were selling annuities inside of the plans, and the performance of funds were below par.
  • Ultimately this is a personal decision, but it pays long-term dividends to determine if you have a high quality retirement plan or not before you invest a higher percent of your paycheck.

3. Max Out an IRA or Roth IRA  Individuals under the age of 50 can contribute up to $6000 to an IRA or Roth IRA each year. Individuals over the age of 50 with earned income can contribute up to $7000 to an IRA or Roth IRA each year. Factors such as your annual income, investment goals, and employment status will ultimately decide which IRA type you contribute to. Regardless of the investment vehicle you choose, I strongly encourage each of you to make as close to the maximum IRA contribution each year that you can!

4. Fund Brokerage Account for Other Goals  Once you have accomplished the above 3 items you need to look at what other financial goals you may have. The time frame and amount of funding needed to achieve your remaining goals will ultimately decide the investments and amount you need to save. More than likely you will be making those investments in a Brokerage account. Brokerage accounts allow you to contribute as many dollars as you want. This in turn makes them great vehicles to save for a home, car, college education, or even additional retirement goals.

While thinking through the above items it is important that you keep in mind that you have a unique financial situation that may require the above items to be altered to best fit your needs. If you have questions, you know we are always available for a discussion!