"What to do when your money is just sitting in an account collecting little return"
I have always preached the need to have money available in case its needed, not just for emergencies but also for unexpected expenses, for example it’s more important to use cash rather than charging and expense, especially if you plan on carrying a balance, the interest will hit you over time on many Credit Cards. However for the lucky few who do end up accumulation a larger sum of money, you may start to find you are better served to put your money into short term and long term investments to allow it to grow or at the very least keep up with inflation.
“Even I made mistake with my cash balances and was not building my returns.”
I realized myself that I had dead money, it was money that I had accumulated over time to ensure I had something set aside in case of an emergency or unexpected expense, which I have used once for a new furnace. I kept this money in a high interest savings account that had accumulated from automatic deposits from my chequing account. Admittingly I did not really check my monthly balance to see how much money I was getting but one day I did. To my surprise I quickly found that the interest I was getting was rather small, this was due to the current state of the economy when interest rates were lower, in fact I was getting less than a .75%, so not even a full percentage. My money was literally acting like a zombie, it was alive but dead, because I was not keeping up with inflation even though it was growing.
But What should I do?
I initially had a dilemma, what to do with the small sum of money I had accumulated over the past few years. I did feel I had more than enough for most emergency or unexpected expense based on what had happened over the last number of years, but since the excess money was not providing a really good return I needed to come up with a plan. Like many people I was a little unsure because although I wanted to get a better return, I did not want to risk losing money either. With all investments be it real estate, crypto currency, money markets, stocks and bonds there are risks in any investments, it’s the degree of risks vs reward that you need to look at.
I needed to come up with a plan and to do this I needed to ask myself two simple questions “What is the extra money for? and how soon will I need it”. These two questions would help me determine the types investments I should look at and allowed me to develop a simple but effective plan:
1. I determined the money was still part of my emergency fund, however I would keep a smaller amount in the account.
2. I looked at my time horizon, meaning when would I need the money, in my case because it was part of an emergency fund, so I would need it quickly.
3. I determined type of investment, in my case I bought a money markets (CD) at 2.25%, not a lot but still significantly better than the .65% I was getting.
Ironically this exercise lead me to change my bank, when I realized that I was not getting such a high interest rate and was looking at other products I stumbled upon an online bank that provided a cash bonus for opening an account $25 as well as a higher interest rate of 1%, not much but I still walked away with a lot more money in my pocket.
My plan is just a simple example to give you an idea on how to build your wealth and ensure the money you have works for you over the longer term. In my case I made a few adjustment to get a higher return for my money. This exercise of course can be used for other aspects of your financial goals such as retirement funds where your time horizon is much longer and you can then look at more longer term investments such as real estate, stocks, bonds, ETF’s and Mutual Funds. I also understand that most people do not have large sums of money to part with however even small amounts of money can grow and help over time but only if you carefully manage your money and do not get involved with risky investments such as Bitcoin, safe, secure investments are boring but they keep your money alive and growing with less risk.
“Finding a balance between investing and cash takes time.”
So raise your money from the dead by finding a way to get a better return but always ensure to invest in a way you are most comfortable for you. It takes time to determine a good balance between investing and keeping money in cash, but over time you will find what works for you. It’s most important to plan out and look at what you think you need to do in order to achieve your own financial goals.