Are you really good at saving, but not so much investing?
If so, you’re not alone :)
Meet Dave – our new friend who asked for some help in this area, and to whom I shot some thoughts over. Putting this out there for anyone else it may help too!
Here’s what Dave sent in:
I am new to your podcast and hear you guys talking about net worth and where your money is. I am currently sitting on savings and haven’t put my money somewhere. I hesitate moving money with the idea that I might get fired or need the money to pay for emergency situations. How would you approach that? I know I am doing this wrong and should be investing it. There is just something comforting about having money in the bank.
Here’s what I wrote back:
A few things:
#1) You can never go wrong holding onto cash!!!
Who cares if you don’t earn much off of it. If it makes you comfortable or happy or both, keep doing it.
#2) That being said, yes – financially it’s much smarter to invest it somewhere to help that cash make more cash babies and their cash babies make babies and so on and so on.
I personally go the index fund route with a look for the way future (decades ahead), but others like to put it into CDs or individual stocks or even real estate. Pros and cons to all of it, in terms of risk and reward, but there are options out there and I guarantee you can find one you’d be comfortable with once you spend some time researching.
#3) The biggest question is how much $$$ we’re talking, and how much you need for feeling safe. (As well as how much you spend as that can be the matter of having 1 month of security or 1 year of security)
For me, anytime I get a big chunk of money I look to see if I have any debts and then pay that off right away (c/c debt, loans – maybe mortgage depending on how much we’re talking and your strategy), and then I move to my emergency/comfortable fund and see if that’s topped off (if it is, I move on – if not, I fill ‘er back up), and after that go to maxing out all my retirement funds (401(k), IRA, etc).
Then – if you have more after all that (would be a blessing!) – I move to extra investing which is where most people turn to the stock market or real estate or whatever else they like (gold/silver….). I’d also make sure $$$ for my kids are set up too, like for 529 college savings accounts.
Again though, it depends on how much we’re talking and what your overall goals are. If you’re trying to retire early it’s probably going to be different than if you wanted to go out and start your own company one day. But either way you go, if you want your $$ to grow exponentially without much work on your behalf, you’ll def. need to put it into something at some point.
Start small and get a feel for it – you don’t have to rush into anything. Make sure you have a decent chunk saved up to feel comfortable/safe, and then take it slowly from there…
Check out some ways to micro-invest, like financial app Acorns which will automatically round up your transactions and drop the difference into an investment portfolio for you a few pennies at a time. I’ve been using them for a year and have $495.25 banked so far and haven’t missed a single dollar. Ultimately you’d want to be investing way more than that, but this would help get your feet wet and you can also up the settings to invest even more each month as time goes on if you’d like.
ALSO — MAKE SURE YOU’RE GETTING YOUR 401(k) MATCH IF YOU HAVE THE OPTION!!!
That’s FREE money and it’s all automated helping you invest without even thinking about it. Not to mention saving on some good taxes up front too. Load it up and take a break from saving for a while! Even without matching it can be an easy way to invest more. HR can help with this, as well as *what funds* to invest in based on your comfort levels/goals. There’s even super conservative options in there like cash too, though I’d recommend the other options since you’re already cash heavy.
At any rate, there are tons of ways to get started growing your money – just take your time and you’ll be fine :) And again, it’s not the end of the world hoarding some cash!
Hope this helps.
I didn’t put it in there, but the good thing is that if you’ve managed to save a good chunk of money, you’ve already done the hardest part :)
Another nice thing about holding onto cash is that it gives you tons of OPTIONS! Not only for growing your wealth, but from staying out of future trouble too. This is why I don’t have a problem with people stacking up all their cash for a while. It’s not optimal in a return-sense (yet), but wow does it put you in a good position for future opportunities.
As Mark Cuban once said:
“You aren’t saving for retirement. You are saving for the moment you need cash…. Cash is king for those wanting to get rich.”
For any of you who’ve stashed some savings aside, you’re doing great. Pat yourself on the back, and then slowly start testing the waters from there :)
Jay loves talking about money, collecting coins, blasting hip-hop, and hanging out with his three beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!