“Save for a rainy day” is an old piece of advice - and a good one.
But is it possible to save too much?
What sort of events could qualify as a rainy day?
It could be any number of things - a temporary loss of employment, a major home or car repair, a large medical bill, and so on.
If you didn’t have the money available to meet these expenses, you might have to dip into your 401(k) or other retirement account, incurring taxes and possible penalties.
That’s why it’s a good idea to keep up to six months’ worth of total expenses in a liquid, low-risk account.
But many people put too much money into their emergency funds.
While this isn’t the worst financial move to make, it could result in missed opportunities.
For one thing, while your emergency fund will likely protect your principal, it won’t provide much, if any, growth.
So, you might consider adding any excess money to your growth-oriented investments for increased growth potential.
In any case, if you decide your rainy-day fund is abundant, use any “overflow” in a way that can help you keep moving toward your financial goals.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor John Dickerson. Member SIPC.
