Great! So, no more credit card debt or high interest loans? Don’t cut up those cards just yet. If you have taken my advise from the previous blog post, and are using Personal Capital to track your spending, you should be seeing cash positive numbers. But what do you do with this sudden windfall of cash? Well, you have a few options. First, since you have spent all your extra money on paying off debt, there is a good chance that your safety net needs some attention. While your savings account is a great place to store money for easy access, most savings accounts have such low interest rates that your money is not working for you. It’s time to put your money to work.
Most financial experts recommend 3-6 months of living expenses in an easily accessible savings account. I keep 2 months of expenses in a high interest savings, at just below 2%, for my wife’s peace of mind mostly. The rest is invested in a Betterment taxable investment account. In the event of an emergency. I can withdrawal these funds tax free as long as I don’t touch the gains. It may take a few days to sell my positions and transfer the money, so this is not what I would consider a fluid account. Remember earlier when I said, don’t cut up the cards just yet? I have a high available balance and can use my credit card to pay for an emergency, then pay the balance from my Betterment funds transfer. Betterment also has a Safety Net account which might be more appealing to you.
Make sure you are tracking your spending and following your budget at this point. It can be very easy to take your extra cash and go blow it on something shiny. Keep thinking needs vs wants. Now, that said, don’t cut off your nose to spite your face. You deserve to treat yourself. That doesn’t necessarily mean to run right out and buy a new car. Figure out what makes you happy, without running up more debt. For me, it’s taking a day off and mindlessly vegetating in front of the television, or taking my wife out for a nice lunch. Find a balance and enjoy the successes of your hard work!
Disclaimer: I am not a licensed financial planner or tax expert. Any views expressed are my own and based on what I have learned on my financial journey. Please do your own research before making important financial decisions.
Fire Dog Personal Finance 