Drowning In Cash? Do these 4 things
There’s no question your skills are in high demand. Regardless of the segment, pilots are flying their pants off right now. Airlines are offering sign-on bonuses, raising the pay scale and the opportunities to pick up more trips abound. Despite the frustrations of trip changes, delays, re-routes and the risk of burnout the financial implication is that you’re having very little trouble bringing home the bacon.
How should I deploy my earnings in a thoughtful way? This is a question I’m being asked frequently. And before clients run off to join the next wave of fad investing or deposit 100% of the funds into their fun-money account, we always check to make sure their current financial positions cut the mustard. We do this by reviewing the financial plan and the goals they’ve previously set up and track their progress towards those goals.
Here are four things you can do with surplus cash:
- Evaluate the health of your emergency fund!
We’ve all heard the stories of people who earn a strong income living paycheck to paycheck. That’s not deploying one’s earnings in a thoughtful way. Your emergency fund should be the most boring and uneventful part of your portfolio. You’ll want at least 3 months of expenses set aside. Here we prioritize access and stability. With inflation eating away at idle cash, you can take steps to diversify your emergency savings.
Ideal locations include savings accounts and money markets, 1-year CDs and Series I bonds from the U. S treasury. With rates on CDs and Series I bonds having increased recently these can be attractive places for a portion of your emergency fund. Although cash isn’t outperforming inflation right now, you cannot beat its liquidity and access. If you’d prefer to have a cash only emergency fund with no inflation hedge, it may be a good idea to increase the amount of your fund since you’re losing purchasing power.
The last thing I’ll say about the emergency fund is this: it’s supposed to be an EMERGENCY fund, not a DOOMSDAY fund, please avoid the temptation carrying too much cash or cash equivalents for an extended period of time.
** 1 year CDs typically have an interest penalty if used prior to the maturity date. Series I bonds cannot be sold within 1 year of purchase and have an interest penalty if sold within the first 5 years.
- Make Progress Against High Interest Debt
Another way you can use your cash earnings to increase your net worth is by getting rid of high interest debt. I know, we take out the 0% credit cards with the best intentions of never carrying a balance and then life happens and next thing you know we’re out of the promo period and carrying a balance at the same time. Credit card debt, student loans, a HELOC with a variable rate, car notes and personal loans are all examples of types of liabilities that may not be best to be held long-term.
I’m a big fan of “free” or “super cheap” money and I can appreciate a strategic use of credit. However when the cost of the borrowing gets too high (such as in this current rising rate environment) it may be time to retire the debt.
- Support One of Your Investment Goals
It’s not uncommon to be faced with multiple competing goals and limited resources to get them done. Deploying additional cash resources to support an underfunded goal can make a real difference. Especially if the goal has a long time horizon and you’re investing in a down market. The value of a financial plan is easy to see in this scenario. You can quickly check to see which goals you’ve deferred funding, you can calculate how much you need to fund it to get it on track and then calculate the difference your new contribution will make. Additional cash is good, additional cash deployed when the equity markets are depressed is even better, especially if you don’t need to spend the funds anytime soon.
- Have Fun!
If you’ve made it this far and you still have surplus cash, have fun with it! We get one shot at life and it’s substantially better when we share it and create experiences and memories with the people we love – our friends and family. Take that trip, buy that item that you’re going to use to create memories with others, reward yourself for the grueling schedule you’ve been keeping. If you’ve been diligent in adhering to your financial plan, I’m sure it can handle the splurge. You’ve earned it, now give yourself permission to enhance your life without the guilt that can sometimes accompany a large purchase.
Until Next Time,
Blue Skies & Safe Landings,
-Tim
