It’s not the right move for everyone, but here’s why it makes sense for me.
I’m a firm believer in having a fully loaded emergency fund. In fact, I tend to err on the side of caution when it comes to funding my savings account.
For most people, an emergency fund with enough money to cover three to six months of essential living expenses is adequate protection from life’s unknown expenses. But I make a point to have more like a year’s worth of living expenses in the bank.
The reason? I’m self-employed, and that means if I were to lose my job or be unable to work, I wouldn’t be entitled to paid leave or unemployment benefits. Also, since I have children who depend on me financially, a house that could need costly repairs at any time, and a vehicle that could put me in a similarly tough spot, I like having extra cash reserves.
Still, in the coming weeks, I plan to move some of my money out of my savings account and into my brokerage account. Here’s why.
It’s time to put my money to work
Generally speaking, you have the potential to earn a much higher return in a brokerage account than in a savings account. Granted, in exchange for that higher return, you do run the risk that you might lose money by investing. But if you don’t cash out investments when they’re down, you can often avoid taking losses during downturns.
Right now, savings account interest rates are downright terrible. These days, you’ll be lucky to snag a 0.50% interest rate, which, for a $10,000 balance, translates to $50 in interest over the course of a year.
At this point, I’m tired of seeing my money rot away in a savings account earning practically nothing. I’m gearing up to move some of it into my brokerage account, where I might potentially earn 10 times the return of my savings account without even having to invest in an overly aggressive manner.
Now to be clear, I’m not going to let my savings account balance dip too low. I want to make sure I leave myself with at least nine months’ worth of essential living expenses. But at this point, I’m starting to think that’s probably enough.
First of all, the money I move into my brokerage account isn’t money I’m losing. Yes, it’s money I shouldn’t plan to tap in an emergency, but it’s money I could tap if I were to somehow deplete …….