What should I do with all the extra money I have laying around?

While that title may be a bit hyperbolic, the gist of the question is one that gets asked in my office all the time.

“Am I saving too much? Surely I could be doing more with my money; it’s just sitting there.”

“What should I do with my extra money? It’s sitting in my checking account because I don’t know what else to do with it.”

Being a good earner and a good saver are fantastic qualities. The ability to avoid debt, defer gratification, save up for things before you buy them, and build a nest egg are skills that allow us to have more control over our lives. More savings and less debt give us more flexibility and the freedom to take opportunities when they come. Which tends to lead to more general happiness and overall life satisfaction.

But being a good saver does create another “problem” to be solved. What should you do with the money?

Forgive yourself for not knowing

Often when we don’t know what to do, we do nothing. It’s a normal reaction and it’s probably not your fault that you don’t know what to do. Most of us weren’t taught the basics of personal finance in school and our parents may not have known what to tell us either. Just because you learned good saving habits doesn’t mean you learned what to do after that.

Do you ever feel like this: “I worked hard to earn this money. I made good lifestyle choices in order to put it aside. Now I feel like I’m falling down on the job of being a good steward of my savings. I should be doing better at this. Is everyone else doing better at this?”

I hope I can help you to let those feelings go. Yes, some people are naturally great at money stuff and a lot of people are not. The truth is, determining the best use of your extra savings is not a simple thing to do. There are a lot of considerations and options. Definitely don’t beat yourself up if you haven’t been putting your cash to its “highest and best” use.

But you do have to take action

It’s not your fault but it is your responsibility. Just because you don’t know what to do doesn’t mean it’s ok to do nothing. You are likely missing the opportunity to make your “little green employees” work harder for you. (I learned that phrase from one of my favorite personal finance bloggers, Mr. Money Mustache.)

Let’s get you past the guilt feelings, past the paralysis, into action. You just have to decide if you want to learn on your own or if you’d rather outsource and get professional financial advice.

Here are the steps I use to determine what to recommend a client do with her extra money.

1. What is the status of your Emergency Fund?

The first thing your savings is for is your emergency fund. Three-to-six months of essential expenses. If you’re already a good saver, with some decent self-discipline, I don’t think you need to overfund your emergency savings. But if you don’t have this much set aside, this should probably be the use of your cash until you do.

2. What are you saving your money for?

Retirement? College? House? Car? To open your dream business in 10 years? In order to figure out what to do with the money, you need to know what it’s earmarked for. It’s important to know how soon and how easily or quickly you’ll need to access your funds.

3. Can you use a tax-advantaged account?

If you’re saving for retirement or college, it might be smart to use a tax-advantaged account, like an IRA or a 529 college savings plan, for the tax savings or tax deferral. The trade-offs are limitations on the access or uses of your money. If you want your savings to be more flexible, a regular investment account is another option.

4. Should you invest your extra money?

After you’ve funded your emergency fund, determined the time-horizon of your savings goal, and decided on the type of account, you’re probably going to need to choose some investments. Remember your “little green employees?” It’s time to put them to work.

Investment selection is beyond the scope of this article. I just want to say, investments don’t have to be complicated but they do have to be appropriate for you in terms of asset allocation, diversification, and cost.

5. Or just outsource the whole thing!

Well, you can’t outsource the earning and saving. Fortunately, you’ve already got that covered. But if this process feels daunting, or if it’s just not the way you want to spend your time, you can hire a financial planner to help you.

If you decide you don’t want to DIY your savings decisions, ask for help from a fee-only, CERTIFIED FINANCIAL PLANNER professional.

Take-away: Don’t Do Nothing

Doing nothing is not an option. You worked hard for your money and it needs to be working hard for you. It’s your responsibility to put it to its best use.

The good news is, you’ve done the hard part. You are already awesome at earning money and saving money. Those are the more difficult skills to learn. Be proud! You can’t outsource the saving but you can outsource the next steps, if you want to. Or you can jump in and do it yourself.

Do you want to work with a planner who can help you decide how savings can support all your financial and life goals? Reach out and schedule a complimentary consultation.