Saving money is critically important but, how much savings is too much savings?
If we’re talking about a regular & plain savings account, anything over 6 months of an emergency fund to cover expenses should something happen to your income, is called “Lazy Money”. What we mean by lazy money is simply that anything in excess of 6 months of savings should be moved to ‘work for you’.
These funds should be:
- Used to pay off any and all debts if possible. No need to carry the debt of you have excess cash to pay it off.
- Invested in your retirement accounts, preferably Roth IRAs or Roth 401ks.
- Added to a Brokerage Account with growth equity funds
- 10%-20% Down Payment on an Investment Property for real estate investing. Diversity is key for future income. Build multiple streams to eventually replace your income.
- Pay off your primary home’s mortgage. Do it. Pay more each month towards the premium and pay that loan off quicker.
- Build a college fund for your children. Open a 529 Savings and contribute money in low cost index funds for it to grow. Trust me. Your kids will be thankful.
- Reinvest in your primary home. Make improvements to increase its worth.
- Have a business idea? Could it earn you additional cash? Use that cash to build a business. Remember, multiple streams of income…
- Annuities. Invest in them. Annuities will pay you an income in the future, at any age, pre retirement or post.
Conversely, don’t take your excess savings and…
- Finance or Lease a new Car. Regardless of interest rates & what dealers are promising you. Cars are NOT investments.
- Loan your excess cash to friends and family. Unless you are ok with not getting a return on that money.
- Buy stuff. I’m not taking about things you actually need, I’m talking about 4 new pairs of shoes, those cool “one-wheel” things, etc
Do you have “Lazy Money”?