Put Your Cash Where It Counts: A Simple Allocation Strategy
Having more income than expenses feels good. But that balance is not optional if you want long-term flexibility.
If you want time without income — whether that is retirement, a sabbatical, or simply more freedom — you must earn more than you spend.
But earning more is only part of the equation. You also need to place your excess cash intentionally.
Cash Placement
Divide your money into two main categories:
1. Long-Term Portfolio
This is money intended for growth. It includes funds you will not need for at least 3 to 5 years. These dollars should be invested to build long-term wealth.
2. Savings Target
This includes your Emergency Fund and any short-term Cash Needs.
Once you determine your Savings Target, keep that amount in a savings account. An online high-yield savings account with FDIC insurance and easy access can be a good option.
You will also need money in your checking account for regular bills. Keep approximately one month of living expenses in checking so you can pay bills comfortably as they come due.
Calculating Your Savings Target and Building Wealth
Start by understanding your monthly living expenses. This number determines:
- How much to keep in checking
- The size of your Emergency Fund
- Your overall Savings Target
When your paycheck arrives, move any excess above one month of expenses out of your checking account.
Then:
- Confirm whether your savings balance meets your Savings Target.
- If it does not, add to savings until you reach it.
- Once your Savings Target is fully funded, direct additional cash to your Long-Term Portfolio.
This simple structure ensures that your money has a clear job and is always working efficiently.
Reflect on Your Finances
Take a moment to ask yourself:
- Do you have a defined Savings Target?
- Are you regularly moving excess cash into your Long-Term Portfolio?