Financial Security: Can You Really Have Too Much Saved?

Did you know that there are better ways to save than just using your spare bank account? In fact, by intelligently investing your cash, you can end up increasing your money while you’re saving it.

It’s easy to fall into the fallacy that stockpiling your money is the best thing you can do, but is it possible to have too much saved? Or at least tied up in all the wrong places?

The answer is: yes!

Most people believe you can’t have too much money in your personal savings account. However, we now know that there is such a thing as too much if you want your money to actively work for you. 

The Federal Deposit Insurance Corporation will only cover up to $250,000 per person in the case of lost savings. Therefore, if you have significantly less in your savings, you won’t be able to generate any meaningful amount of interest from your account. 

For those who want to generate long-term funds from their money, it may be better to get a CD that yields an annual percentage that is more beneficial to you. 

How much to keep in emergency funds

While everyone’s individual needs vary largely depending on their salary, debts, and personal needs, most experts generally agree you will need at least 3-6 months of your general income saved for emergencies. 

If there is a layoff, or you need to relocate quickly, this amount should be able to help you navigate these changes without a dramatic decrease in your lifestyle. The easier it is for you to find new work, the less you may need in your savings. If you have a job in a stable market, you’ll likely only need 3 months of savings, but if you work in a niche market, it may be smarter to save closer to 6 months to allow you the time to find more work. 

If you live in a home that is easily supported by another household member on one income, then you will likely need fewer funds as well. However, it’s always better to discuss these potential outcomes before deciding the amount you will be saving, so you can both be clear about your expectations during a potential emergency. 

Explore beyond savings accounts

Many believe that it’s a good idea to gain extra cash from their traditional savings through interest rates, but it’s important to realize just how small many of the returns on investments are from typical accounts. Most high-yield savings accounts gain only a 1% return rate annually. Due to inflation, this can actually make it harder for you to retain the value of your hard earned money over time. 

By choosing other modes of investment, you’ll be in much better financial shape in the long-run. 

What to do with leftover money

One of the best action plans for your spare funds, especially after you have $250,000 in the bank, would be to invest your assets. This helps you break the cycle of letting your money just sit there and instead start generating extra cash. 

Some of the best ways to invest your extra funds are through bonds, stocks, or mutual funds. If your employer offers it, you can also consider contributing more money to your 401k or 403b. 

By placing more funds into your employers plans, you’ll be actively earning more over time than you could from the interest on your savings account. This will help greatly increase your retirement savings and allow your money to get a head start in finally working for you!