GMR 168: Is There Such a Thing as Having Too Much Cash?
When you consider having available cash on hand, you may think the more you have, the better, but that’s often not true. In this episode of Getting Money Right, we’re discussing when too much cash can be a bad thing and offer some recommendations for what to do when you’re in this situation.
Show Notes
How much cash is too much to hold on to?
I would call that “Extra Savings”, Liquid Cash. The word liquid speaks to how easy it is to get access to the cash. So this could mean a checking account, savings account, or high yield savings account.
Let’s briefly break these three accounts down:
1. Checking Account - should be for your budget
Short-term savings
Medium-term savings
It is possible to have a bunch of cash in your Checking Account. f you live on a budget, then you should be focused on the numbers in your budget, less worried about the number in your checking account. This is a major shift in thinking.
2. Savings Account - can be used for various specific savings goals, however, we don’t typically recommend making a bunch of savings accounts, instead of tracking everything in your budget.
3. High yield savings accounts
Emergency Fund
Large Chunks of Cash that would usually just be sitting in your checking account, but won’t be needed for at least a year.
We recommend a Checking Account that’s used for all your budgeting needs and holds short and medium-term savings (vacation fund, car maintenance, medical out-of-pocket costs, etc.). And we recommend a High Yield Savings Account that holds your emergency fund.
What happens when your “extra savings” gets out of control and you end up with too much cash?
First off, celebrate! This is not a problem most people have. Great job! You must realize that you’re a high saver and that’s pretty cool!
Second, realize the “opportunity cost” of the money sitting in cash.
Pay off Credit Card - 10%-18% rate of return
Pay off the mortgage - 3.5%
Invest Long-Term - 6-10%
Personal Generosity - Immediate Benefits
Individual Stocks - Dividend Paying Stocks
If you had a paid-off house, would you pull $100,000 out of the house to put into the bank? Basically go back into debt, just to keep the cash in the bank? Probably not.
What do to if you have too much cash?
“Peace of Mind” (POM) Fund is good to have, but don’t over do it. Having more money will not bring you security. Consider using the extra cash as an “Opportunity Fund.”
Put into a 60/40 (Stock/Bond) Mutual Fund?
Invest in a business to serve more people
Think generosity! How can you use this cash as a means to provide you with the means to serve more people and fulfill your purpose?
Resources
Budgeting tools and other free resources - https://leosabo.com/resources
David’s website - www.stewardshippastors.com