Now that we have learned how to get the most utility of our money, we need to think about where to put it. There are many ways for you to store your surplus cash and today we will look at some of them,
The first and most obvious is stashing your cash in your own home. In your sock drawer, closet, or safe. I do keep a small amount of cash in my home locked up in a safe, but it is very little and used only when I need to. If I need to make a quick cash deal and the bank is closed, I can grab a little bit and not let it slip away, then replace it later. I am a huge fan of having money in different places. Call it diversification, or whatever you like, but I like the peace of mind of knowing that I have money available in different locations. If you have all of your money in one spot, you could be screwed if it should happen that your bank has a major malfunction. I have even heard of the unlikely, but real scenario that a bank just closes your account
It isnt advantageous in the long run to hold a large amount of cash at your home or outside of a banking institution. This is simply for a little diversification. This is for the simple fact of inflation. Over time, inflation kicks in and prices rise. If you have all of your money gaining no interest or dividend, you are losing money. So keep only a small amount in cash available.
The next place to look at is a savings account at your local bank. I have a checking account and a savings account at a local brick and mortar bank. I keep a small amount of cash in that savings account for not too far down the road expanses. Most financial advisors suggest having an emergency. I have found that when you have an emergency fund, you end up having a lot of emergencies. Most will label a situation as an emergency whether it truly is or not.
I prefer to refer to this account as basically an escrow account. It is used to pay expenses like insurance premiums and property taxes. It is occasionally used for vacation spending and small luxuries. With an interest rate of .03%, it is not worthwhile to keep much in this account and use it for small planned and unplanned expenses.
With a substantially higher interest rate, many are moving their medium term stash to an online savings account. Online banks can offer much better interest rates because they have little overhead. There are no local branches with buildings and bank tellers. You simply sign up for an account online and you can link your other bank accounts to it to transfer the money easily. Two of the very best online savings accounts that I personally use are Capital One 360, which currently offers a .75% interest rate, and Ally Bank, which currently stands at .87%. Less than 1% interest, but certainly better than an account at a brick and mortar bank. One useful tool that I have discovered with Capital One is that after you open a savings account, you can nickname sub-accounts under the same account number for different savings goals and have the money placed into the sub-accounts at your direction.
This is not the place to put money for immediate access as it takes 3-4 business days after you make the transfer to actually see the funds in your account. It is a great way to curb impulse spending and a place where you should keep a larger portion of your money.This money should be earmarked for bigger expenses such as larger vacations, a car, Christmas or use it as a cash position of a brokerage account.
Which brings me to the next step in stashing your cash for financial freedom. The brokerage account. In a brokerage account, you can invest in many different ways. Within your brokerage account, you can open an IRA or 401k for retirement, 529’s for children’s college, or you can invest with a regular taxable account. Within your brokerage account, you can invest in stocks, bonds, real estate (REIT), and precious metals, for example. The sky is the limit with a brokerage account, but I prefer to keep it simple with just a few funds, which I will explain later.
When it comes to brokerage accounts, my go-to favorite is Vanguard. Vanguard is not your typical brokerage firm. It is owned by the fund shareholders, which means that when you own a Vanguard fund, you also own a piece of the company. Signing up with an account with Vanguard was fast and simple. I was able to start the account and fund it without any hassle. You can link your checking account or your savings accounts to it to make the transfer process easy.
So keep a small amount of cash on hand, a slightly larger amount readily available at your local bank, an even greater amount in an online savings account, and the bulk of your cash in various investment vehicles with a brokerage account. Simple and easy.
Rise up and stay strong!!