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Welcome to Select’s newest advice column, Getting Your Money Right. Once a month, financial advisor Kristin O’Keeffe Merrick will be answering your pressing money questions. Have one you want to ask? Send us a note at [email protected]
I’m 32 and have finally found some financial footing in my life. I have an emergency savings account, I contribute and max out my 401(k), and I am recently debt-free. In fact, over the past year, I have been able to save an additional $25,000.
My issue is that I don’t know what to do with this money. I would like to invest some or all of it, but I’m overwhelmed by my choices of platforms and investing apps. Also, I’m not sure if I should consider hiring someone to help me on this journey. What do you suggest?
Flush But Nervous, NYC
This is one of the most frequent questions I’m asked as a financial advisor, which is why I chose your letter to kick off this column. First, congrats on your recent financial success. Getting out of debt and creating a substantial savings account is a wonderful achievement, and you should be proud of yourself.
I have found that most people know the framework of early financial success — emergency fund, retirement account, ample savings that could be earmarked toward a future goal and little or no debt. Where many get stymied is determining how to embark on what I like to call the “middle bucket” journey.
What is a middle bucket, you ask? I refer to this bucket as your liquidity before you can access your retirement funds. Liquidity is essentially cash or the ability to turn something into cash.
For example, a stock in your portfolio is going to be more liquid than your home because you can sell the stock quickly and turn it into cash. Conversely, you can’t sell your house in a day and get the cash in your hand immediately.
When I describe one’s liquidity, I visualize three main buckets. Bucket One is your checking account and your emergency savings. Bucket Three is your “qualified money” — money that is earmarked for retirement and/or college savings. Bucket Two is your excess savings that ideally turns into your taxable investments.
This bucket is there to provide you with the money you need to live your life and achieve your goals. Some people will use this money …….