{"id":10198,"date":"2019-04-09T13:34:08","date_gmt":"2019-04-09T20:34:08","guid":{"rendered":"http:\/\/www.wealthfront.com/blog\/?p=10198"},"modified":"2023-10-10T16:00:05","modified_gmt":"2023-10-10T23:00:05","slug":"6-things-you-could-do-with-your-cash-and-how-to-decide-what-goes-where","status":"publish","type":"post","link":"https:\/\/www.wealthfront.com/blog\/6-things-you-could-do-with-your-cash-and-how-to-decide-what-goes-where\/","title":{"rendered":"What to Do With Your Cash\u2014How To Decide What Goes Where"},"content":{"rendered":"\n

Figuring out what to do with your cash is definitively what we would call \u201can opportunity\u201d as opposed to \u201ca problem.\u201d Needing to make strategic decisions about how and where to put your cash to work means that you have <\/em>it, which, let\u2019s be honest, is already a relief and a win. We just thought we would mention that before diving into this breakdown of things you could do with your cash. Don\u2019t stress too much. Making<\/em> money is work \u2014 being strategic about where it goes should feel like a fun game. (Well, it\u2019s a game where making the wrong move can cost you actual money<\/em>, so maybe don\u2019t take it too <\/em>lightly.)<\/p>\n\n\n\n

Here are some of the key things you could do with your cash and some insights on how to decide what goes where.<\/p>\n\n\n\n

Pay taxes<\/strong><\/h2>\n\n\n\n

Paying taxes often falls too far down on the priority list, but you\u2019ll find yourself in a significantly better position to save and invest if you first <\/em>proactively tackle your taxes, as opposed to reactively scrambling to cover your debt to Uncle Sam when the deadline hits. Sure, this is a lot less fun than going on a ski weekend and less satisfying than writing a check to provide clean drinking water to families in Detroit<\/a>, but if you anticipate owing taxes this year<\/a>, paying with cash is far <\/em>preferable to putting this bill on a credit card, which carries painfully high fees. And if you expect you\u2019ll owe more than $1,000 on your federal taxes in 2019, you\u2019ll need to pay estimated taxes each quarter. Again, it\u2019s a good idea to set aside your cash for this instead of enduring the IRS fees and the high interest rates on your credit card. <\/p>\n\n\n\n

Save it<\/strong><\/h2>\n\n\n\n

Taking all your cash and sticking it in a savings account is definitely one thing you could do. And up to a certain point, saving your cash is undeniably a good move. In fact, keeping cash on hand is the cornerstone of any healthy financial setup \u2014 if you do it right. Let\u2019s start with the basics: You should essentially look at your checking account as a holding chamber for paying bills and covering day-to-day expenses. It\u2019s not where you should save. <\/p>\n\n\n\n

So how do you sort through all the options for where <\/em>to keep your cash? Checking account, CDs, money market accounts, the savings account you\u2019ve had since you were 14 \u2014 there\u2019s not exactly a shortage of places where you could keep your cash once you\u2019ve figured out the ideal amount of it to hang onto. This is a real \u201cdon\u2019t panic\u201d moment. We love the Wealthfront Cash Account. (Biased? Sure. Spot the lie, though.) It\u2019s flexible, there\u2019s no penalty for accessing your cash, and it further brings more of your accounts into the same ecosystem so you can get a bird\u2019s eye view of your financial life without having to log in to a thousand places. <\/p>\n\n\n\n

First things first.<\/strong><\/h3>\n\n\n\n

When it comes to saving, before doing anything else, you should stock up an emergency fund<\/a> that\u2019s big enough to cover your basic living expenses for at least 3-6 months, depending on how much of a safety net keeps you sleeping soundly at night. And make sure this cash reserve is doing the most it can by ditching your old savings account, which likely has a barely-there interest rate that earns you basically nothing. Opt instead for an FDIC-insured, high-yield cash account, like the Wealthfront Cash Account,<\/a> which has a 3.30% APY and up to $8 million FDIC insurance. (What, like we were not <\/em>going to mention that we have a bomb cash account? Facts are facts.)<\/p>\n\n\n\n

Beyond an emergency fund, look at any goals you have coming up in the next 3-5 years, and make sure you\u2019re saving for those too<\/a>. For expenses like the new car you want to buy next year, the wedding you\u2019re planning the year after that, or the home renovation you want to do soon, keeping the funds you need in a high-yield cash account will help you sidestep the risk of an ill-timed market downturn suddenly leaving you with less than what you need at the moment you need it. Market fluctuations don\u2019t carry that same risk when you\u2019re talking about money you won\u2019t need to touch for years and years.<\/p>\n\n\n\n

Pay off debt<\/strong><\/h2>\n\n\n\n

Once your near-term savings needs are accounted for, you might start to look at whatever debts you\u2019re carrying around with the urge to throw everything you\u2019ve got at them, like they\u2019re monsters in your closet and only your extra cash will make them go away. (Honestly, kinda true.) Our favorite rule: If the after-tax interest rate on your debt is bigger than the likely gains on an investment, put your cash towards paying down the debt. This is likely the case with things like credit cards, which tend to have much higher interest rates than any returns you could expect from most investments. (Want a more detailed rundown of how to decide whether to pay off debt or invest your extra cash? Way ahead of you<\/a>.)<\/p>\n\n\n\n

Invest it<\/strong><\/h2>\n\n\n\n

Having enough cash on hand for any near-term expenses (expected or not) is a baseline of smart cash management. But beyond those emergency and short-term needs, keeping too much of your money liquid can severely cripple your ability to grow wealth and work toward your big, long-term goals in a meaningful way. A good rule is to invest any cash that you won\u2019t need in the next three to five years, depending on your tolerance for risk. <\/p>\n\n\n\n

Whether you\u2019re looking at allocating a windfall, trying to max out your contributions around tax time, or setting up recurring deposits, we\u2019re big fans of throwing your cash down the road at your bright future via IRAs, 529 accounts, and other investment accounts<\/a>. Deciding which accounts<\/a> \u2014 and how much to invest in each of them at various times \u2014 is a whole other conversation<\/a>.<\/p>\n\n\n\n

Donate it<\/strong><\/h2>\n\n\n\n

Donating money, for a lot of people, sits squarely in that \u201cI should do this, I want to do this, I don\u2019t really know where to start doing this\u201d category on their to-do list. While it might not feel as pressing as paying off your student loans or as rewarding as saving for a home renovation, there are significant upsides \u2014 both when it comes to your taxes and just being a good person \u2014 to giving your cash to charity that merit moving it up the priority list. <\/p>\n\n\n\n

Spend it<\/strong><\/h2>\n\n\n\n

We are all about investing and saving for your future, but also \u2014 hey, you can\u2019t take it with you, right? The absolute best part about being holistically strategic with your big-picture financial plans and mindful in your day-to-day spending is knowing where you can spend, without guilt or anxiety. Spending your money is not inherently bad. This might seem like an obvious thing to say, but it\u2019s incredibly easy to subconsciously conflate \u201cirresponsible spending\u201d and \u201cspending at all.\u201d <\/p>\n\n\n\n

So, how do you decide how much goes where?<\/strong><\/h3>\n\n\n\n

As much as we would love to give you a one-size-fits-all answer to figuring out exactly where to put your cash, we would never do that. And honestly, you probably shouldn\u2019t trust anyone who tries to. There are simply too many factors and nuances that push and pull on your financial specific interests \u2014 how you prioritize your spending and saving, what your vision of the future looks like, and how you want to live your life in the meantime as you work toward realizing that future. So we can\u2019t tell you some magic formula that will make the numbers fall into place (at least not yet<\/a>). <\/p>\n\n\n\n

But we can do everything just short of that. <\/p>\n\n\n\n

Here are our key go-to tips for optimizing your cash:<\/p>\n\n\n\n