Avoiding the Pitfalls of Having Too Much Cash in a Bank Account

Avoiding the Pitfalls of Having Too Much Cash in a Bank Account

May 15, 2023

Wouldn’t it be wonderful to look at your bank account and think, “WOW! I’ve got way too much in there!” 

That’s actually true for many people (although they might not recognize it). While it’s advisable to have around 6-12 months’ worth of living expenses in a savings account so you can get to it in a pinch, beyond that you could be missing out on opportunities to make that money grow. 

Each choice you make has positive and negative repercussions and may cost you in different ways. Robert Johnson, a professor of finance at Creighton University, points to a classical example of the returns caution-minded investors miss out on when they downplay stocks in favor of more secure investments long term. 

“A prime example is the opportunity cost of holding cash,” Johnson says. People like to think cash is king, he says, but holding exclusively dollar bills long term all but ensures you’ll experience large opportunity losses. 

Forbes 

 

How an Advisor Can Help 

It’s often difficult to know where to begin when you have money to invest. That’s when working with a financial planner can be beneficial; a professional can give you some options so you can make educated decisions based on your own risk tolerance (i.e., where you are in your retirement savings process). 

Investment Opportunities  

The most obvious way a financial advisor can help you is by helping you figure out where to invest your excess cash. This could mean helping you find stocks or mutual funds that align with your goals, or it could involve something more complex like setting up a trust or other tax-advantaged investment strategy.  

Financial Planning  

In addition to helping you invest your money, a financial advisor can also review your entire financial picture and offer advice on how to better plan for the future. They can look at things like budgeting, debt management, retirement planning, estate planning strategies and more and offer guidance on how to make the most of your money over the long term.  

Tax Strategies  

Finally, some advisors specialize in tax strategies that can help reduce the amount of taxes you owe each year. A good tax strategy should ensure that all laws are followed while minimizing taxes due so that more of your hard-earned money stays in your pocket each year. 

Finding yourself with too much money in the bank is certainly an enviable problem to have—but it still needs addressing! Whether you need help investing, creating a long-term financial plan or finding ways to minimize taxes due each year, working with a qualified professional is one of the best steps you can take toward building a secure financial future.