There’s no denying how satisfying — and reassuring — it is to have money set aside in a savings account. But at the same time, investing has historically been more powerful than saving when it comes to hitting long-term financial goals.
So … where’s the right balance? How much of your money should you keep in cash? Here’s Sallie’s advice.
Sallie’s answer:
The answer is, for some of you, less than you have and less than you may think. The research tells us that women keep 71 cents out of every dollar in cash, and that means we can be missing out on the investment returns that have historically been available from investing in the stock markets and bond markets.
What you want to do is keep three months to six months’ of take-home pay in an FDIC-insured bank deposit. That is there in case of an emergency. That’s why we call an emergency fund.
In addition, you might also want to keep in cash an amount that you’re going to need for something that you’re dying to have in the next year. Maybe you want to buy a house or an apartment in a few months. Maybe you want to go on that amazing trip around the world. You’re not going to want to subject the near-term goals to the volatility (even given the potential for upside returns) in the stock market or the bond market.
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