(FinancialHealth.net) – Savings accounts are a fundamental part of any solid personal financial plan, but it is possible to put too much in them. Most of us don’t have to worry too much about that, but every now and then we may get lump sums of money and be tempted to put them in savings, which could mean we’re losing money instead of making it.
About 20% of your income after taxes should go toward paying off debt, meeting financial goals, building an emergency fund, and retirement savings. The average person would do well to have enough savings to last about 6 months without an income. Self-employed people and others without access to unemployment insurance should have about 9 months worth of savings for that purpose.
When you find yourself going over that amount, it’s time to start making your money work for you by diversifying and investing. That doesn’t mean you need to head to Wall Street though. You can diversify and invest in a lot of ways, such as real estate, penny stocks, and even investing in a hobby that could turn into a part-time income.
Do you have to wait until you have 6 months worth of expenses covered in your savings account to start investing? Absolutely not. You can do them both at once. Simply put a portion of that 20% into a savings account and a portion into another account meant for the sole purpose of diversification and investments. Just figure out what your end goal is and try different formulas to get you there in a specific period of time. Use direct deposit when you can so you never see the money to miss it.
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