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What to Do with Savings Now

by Neal Frankle, CFP ®, The article represents the author's opinion. This post may contain affiliate links. Please read our disclosure for more info.

If you are sitting on a significant amount of cash, you might be wondering what to do with savings now. Interest rates are so low that it’s easy to get complacent and not put much thought into the issue. Here’s an e-mail I received from an interested reader, “N”:

I have $20,000 in savings and I’m not sure what to do with it. I have $6,000 in student loans and no credit card debt. My car is from 2001 and may need replacing in the next few years. I have no children and I’m not sure if I should pay down my debt, keep some in savings, invest some etc… Do you have any suggestions for me?

I was delighted to get this question because my sense is that lots of people struggle with similar dilemmas. As is often the case, the question N asked was important, but she really should have been asking other questions as well. First, to the advice.

First Things First

My suggestions were for N to pay off the student loans and put aside some money for the car she’d need to buy soon. (This, by the way, is a great example of why I am very much against sending kids to expensive college.) I also suggested that she buy a used car and not take out a car loan. I figured that would eat up most of the $20,000 right there. I next suggested that she force herself to put aside a certain amount each month for savings. Eventually, she’ll want to start saving money for a house too, but we weren’t there yet.

Focus

Because N doesn’t have any credit card debt, we know that she isn’t an over-spender. But in order for N to get to the next level, she needs to focus on two things:

a. She needs to implement a budget-tracking system.
b. She needs to have a financial plan.

If you’re a regular reader, you already know that I think everyone should track their spending and have a financial plan. Trying to navigate your financial life without these two tools is like trying to sail a ship without a rudder or sails. You won’t get far and even if you do, it won’t be where you intended to go.

Budget tracking will allow her to see where her money is going. Most people don’t really know what it costs them to live, and if that describes you, it’s something you need to fix. If you track your monthly spending, you’ll know exactly what it costs you to live. And if you know what it costs you to live, you can very easily make slight changes that will result in huge advances.

A financial plan sets out a clear path for your future. You lay out where you want to be and what you need to do in order to get there.

N asked about what to do with her savings. That was a good question. But why stop there? Sure, that’s her immediate need. But I find that many people focus on the short-term question at hand when the bigger issues go unaddressed.

What other advice would you give N?

 

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Comments

  1. Brad says

    August 25, 2011 at 6:32 AM

    I think that is good advice. Payoff the student loan debt. I would also put a good portion into an emergency fund. This is something I wish I had done much earlier. I would then put the balance into a ‘new car fund’. Finally, I would begin adding to the new car fund each month. At a minimum, N could pay into it the amount of the student loan payment.

    The advice on the budgeting is spot-on. I have been a long time user of YNAB and it helps me to do the above seamlessly. Much better than Quicken ever did.

    Reply
    • Neal Frankle says

      August 25, 2011 at 6:53 AM

      Brad, I’m w/you on the YNAB. I love it and so do my wife and kids in college. Thanks for your comment.

      Reply

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Who is Neal Frankle

Neal Frankle

I'm a CERTIFIED FINANCIAL PLANNER™ Professional with more than 25 years of experience. I feel very blessed and hope to share my personal financial experience and professional wisdom with readers of WealthPilgrim.
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Retirement financial education for people age 55+ seeking to retire well and for those retired seeking to enjoy a better retirement.  We discuss retirement planning, retirement investments, taxes in retirement, retirement spending, IRA and 401k distributions and we will personally answer questions that you pose in the video comments.

While so much financial information is about preparing for retirement, what about managing your finances in your retirement years? That's exactly what we cover at Retirement Crusaders.

Neal Frankle is a retired registered investment adviser. Larry Klein is a retired financial advisor and retired CPA. They have 70 years of financial advising experience to share so that you have your best retirement years.

Retirement financial education for people age 55+ seeking to retire well and for those retired seeking to enjoy a better retirement. We discuss retirement planning, retirement investments, taxes in retirement, retirement spending, IRA and 401k distributions and we will personally answer questions that you pose in the video comments.

While so much financial information is about preparing for retirement, what about managing your finances in your retirement years? That's exactly what we cover at Retirement Crusaders.

Neal Frankle is a retired registered investment adviser. Larry Klein is a retired financial advisor and retired CPA. They have 70 years of financial advising experience to share so that you have your best retirement years.

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Retirement financial education for people age 55+ seeking to retire well and for those retired seeking to enjoy a better retirement.  We discuss retirement planning, retirement investments, taxes in retirement, retirement spending, IRA and 401k distributions and we will personally answer questions that you pose in the video comments.

While so much financial information is about preparing for retirement, what about managing your finances in your retirement years? That's exactly what we cover at Retirement Crusaders.

Neal Frankle is a retired registered investment adviser. Larry Klein is a retired financial advisor and retired CPA. They have 70 years of financial advising experience to share so that you have your best retirement years.

Retirement financial education for people age 55+ seeking to retire well and for those retired seeking to enjoy a better retirement. We discuss retirement planning, retirement investments, taxes in retirement, retirement spending, IRA and 401k distributions and we will personally answer questions that you pose in the video comments.

While so much financial information is about preparing for retirement, what about managing your finances in your retirement years? That's exactly what we cover at Retirement Crusaders.

Neal Frankle is a retired registered investment adviser. Larry Klein is a retired financial advisor and retired CPA. They have 70 years of financial advising experience to share so that you have your best retirement years.

YouTube Video UCoU0buhwVplzXrsyf342nOg

Retirement Crusaders

June 10, 2022 1:19 PM

Subscribe
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