I sit down with individuals and families on a daily basis and there seems to be a common question I get asked quite often. “Is having too much cash in my bank account good or bad thing?” I begin my response by asking them a question in return, “is too much of something good or bad?” If we think of the initial question the contemplation of moderation is always key. The quick answer to their question is YES and I will tell you why.
There are people out there who are skeptical of the banking system and then there are others who take the banking system for granted. Always remember your money is secured by the FDIC if you use an insured bank account. Your account is insured up to $250,000. Yes, you can have more than one account, but if you have more than $250,000 in a bank account you are putting the remainder of that money at risk. If you find your self with accounts over $250,000 you need to take more precautionary steps to secure anything over that amount.
I often remind my clients that having too much cash in their bank accounts prevents them from reaching their financial goals because they are not making their money work for them. I show them by creating strategic financial plans that meet their needs, offer opportunities for them to take advantage of, and ultimately help them achieve their desired outcomes.
Is my money safe?
Remember sitting in cash is okay, but if you find yourself in a significant position take massive action! Yes, I know it's your money we all hold on to it very tight and don’t want to lose 1 penny of it, but not taking on any risk and sitting on cash is not the best strategy. Low-risk low reward. High-risk high reward. When you sit in low-interest savings account you will be moving the ball forward very slowly and ultimately finding your self at end disappointed of your goals and dreams.
The Silent Killer
People often fail to consider how inflation eats up your cash. Did you know that the average rate of inflation is about 3% over a period of time?!? It loves to eat away at your bills. You can use the analogy that if you buried your cash in a field and took all the necessary precautions you can think of to protect your buried money from all of the earth's natural elements you will find your self when you go back and dig your money back up that a certain percentage of it has either been withered away, molded, deteriorated, or worse due to uncontrolled variables. That is the same way inflation works in your bank accounts.
I'm sitting in cash, waiting for the right moment
A good number of people I sit down with tell me, “I am waiting for the right moment to enter the market so I am sitting on cash right now” They are often surprised when they ask me when is the best time to enter in the market. I always tell them in a sincere way that the time is right now! This second. Today. This afternoon. You get the point. It is not timing the market, it is time to be in the market because you cannot time the market. It already has its own rate and heartbeat just jump in, yes its a scary feeling but If I can remind you something that happened to me that help me achieve the things I have done to get where I am now. Its the average rate of return that everyone loses sight of. Stay the course, don’t let emotions play with your mind. Don’t make a mistake listening to your beer drinking buddies who think they know what they are talking about.
Feeling afraid of the unknown is normal, its ok
Determine your amount of risk. If you cannot determine that on your own find a good trusted financial advisor who can help you. Understanding that too much cash in a bank account is detrimental to your nest egg. Sitting down with a financial advisor can help you determine how much cash you actually need to have on hand. They can help you determine and plan for irregular expenses that can arise. A financial advisor can help solidify all this buy strategically making sure you are securing your short-term and mid-term goals along the way.
Being Safe is Important
Yes, save some cash being safe is good. People often stay there because it feels safe and don’t move from that spot. Remember safety doesn’t help you grow your money, it only helps maintain what you have. The longer you sit on cash you lose buying power due to inflation.
If you aren't sure if you are taking on enough risk or would like to re-evaluate your strategy and live in the greater Austin area I would be excited to help you make sure you are on track to meet your goals and dreams. If you have never taken the time to get a financial needs analysis done for you and your family feel free to reach out to me.
Rene Gonzales
Senior Representative
c. 512-568-7203
e. Rene.Gonzales@Primerica.com
w. www.Primerica.com/ReneGonzales
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