So, you’ve been crushing it all summer long. Now you’ve got a nest egg, maybe even a larger one than you ever thought you’d have. If you’ve been able to skip the temptation of all the mid-summer sales (lookin’ at you, Amazon Prime Day), you may be wondering where to put your extra money.
But where to put the money largely depends on what you plan to do with it.
If you’re planning to use the money as a home down payment in the next 12 months….
If you plan to use the money in the foreseeable future, but don’t have a firm date for when you’d like to use it, then you’ll want to put this cash in a high-yield savings account. This way, your chunk of money earns as much interest as it possibly can over time. And while current interest rates on high-yield savings accounts aren’t terribly exciting, at minimum, your chunk of money will earn as much interest as it can over time, but you’ll still have quick access to it.
I recommend high-yield savings for goals like homeownership or a new car over a short term CD or money market account because these tie up your money for a certain amount of time…like a year or more. When shopping for the largest and most expensive purchases of a lifetime, (e.g. house and car), you never know when the perfect home will pop up on the market. You want to be ready when it does, so it’s important to keep your money easily accessible.
If you’re planning to use the money for a trip this fall or a new back-to-school wardrobe for you (or your kids)…
If you’ve got big plans in the near-term for your summer hustle money, it’s best to keep it in your checking account, or the savings account tied to your checking account. Putting it somewhere new (like in an investment or high-yield savings account) doesn’t really have any benefit or purpose.
However, if you’re the type (like me) who can’t resist touching all your hard-earned cash, I suggest trying a savings app like Mint to help keep track of your budget and day-to-day spending.
These savings apps also sync with your checking account to sneak little bits of money away on your behalf. For example, if you spend $3.01 on your morning latte, you could set the app to sneak that .99 cents round up away into your app savings.
This way, you can continue saving with ease, but won’t be tempted to dip into the funds when something strikes your fancy.
If you’re planning to save the money to beef up your emergency fund….
There’s a lot of content online about whether you should keep your emergency fund money in a savings account or a non-retirement investing account. I’m in the second camp and here’s why: interest rates are abysmal. (Imagine clapping hand emojis in between all those words…that’s how strongly I feel about it.) Statistically, you’ll earn way more money in the stock market (the stock market has an average rate of return of 10%.) Again, this is an average and performance isn’t guaranteed. Each year is different.
But imagine, for example, things go well and you earn an average return of 7% between now and next summer on your $5,000 nest egg. By not adding anything else to the account, you could have an extra $350 in your bank account by the time next summer hustle season rolls around.
If you don’t touch the money and truly hold onto it for an emergency, you could have $5,724.00 in your account the summer after next, if you assume the same average rate of return. At most, a high yield savings account with an interest rate of 2.2% would only net you an additional $222 by summer after next
For money that you’re planning to just sit on, I think investing to try and maximize the amount is the way to go.
A final note to consider
There’s something important to consider when deciding if investing your emergency fund is right for you: risk. There’s always the risk the market could dip and you lose some of your money. Leave it in there long enough and the market should recover, but if an unexpected expense pops up you could end up with less cash for your emergency.
Ultimately, it’s a personal decision and you have to decide for yourself how much risk tolerance you have and how much money you can stomach to lose. No risk, no reward.
Summer is the best time to side hustle – the days are longer, most people have more free time, and the pace of things just slows down a little so you can focus on something outside of work and you day-to-day life. Put your money in a place that works as hard as you did this season, and set yourself up for long-term financial success.