Too Much Cash in Savings?

By Kristen Euretig, CFP®, Founder and Chief Planning Officer

It’s a busy time of year financially – it’s tax season, bonus season, annual review season and time for raises. A lot of stock option plans are designed to vest in the first quarter of the year as well. You may find yourself sitting on some cash and wondering what to do with it. While it’s a good problem to have, it can still sometimes feel like a problem. The path of least resistance is to just move funds without a specific purpose to a savings account, but by the time we meet with clients, many have been doing that for years and have 6-digit balances in their bank accounts and wonder what they might be missing.

First off, if you have cash over $250k in a bank account, proceed with caution. The FDIC limit is $250k; this means in the event of a bank failure, the government won’t insure deposits over the limit. We have options for clients in this situation through our partnership with Flourish Cash, but more often than not, people don’t need that much cash on hand.

The issue then is: what to do with it? And the answer, like much of financial planning, is not simple. We work with clients to identify their goals, timeframes and risk tolerance to back into a savings plan. So for a client that wants to make a down payment in the next year for example, having 6 digits in cash may make perfect sense. If we had the same situation yet the client’s timeline is 5 years, then we’d likely recommend a conservative investment portfolio that targets preservation of the down payment over aggressive growth. This is all assuming the client has no high-interest debt, a fully-funded emergency fund, and other interim goals on track – which is part of the financial planning process – to make sure all the boxes are checked.

We also work with clients to design plans for bonuses and other unexpected cash influxes by setting up systems like for example that 50% of bonuses will go towards a long-term goal, 30% to a travel fund and 20% to a ‘treat yourself’ splurge. A prospective client told me recently that she was interested in Brooklyn Plans because her coworker is a Brooklyn Plans client and came to work with a designer bag that she described as “financial planner approved.” We encourage our clients to strike a balance between investing and spending on themselves, because that’s what your hard-earned money is for.

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