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Sitting on a pile of savings right now? Financial planners say there are 5 smart ways to use it

One of the first changes I made at the start of the pandemic was a complete overhaul of my personal finances. When things started shutting down and some of my work as a freelancer and entrepreneur was put on pause, I realized I needed to adjust my budget quickly.

5 smart ways to use it.


I was eager to save money, plan ahead for possible emergency spending (healthcare costs in case I got sick or bills in case I lost all of my work), and make sure I was still finding ways to contribute to my retirement fund.

All of these changes resulted in a tighter budget and more money in my savings account than I’ve ever had before. It turns out, I’m not alone.

According to the US Bureau of Economic Analysis, the personal savings rate (the amount of people’s income left after they pay taxes and spend money) hit a historic 33% in April 2020. A year later, in May 2021, it dropped to 12.4%, but that is still high — the average personal savings rate in 2019 was 7.6%.

Since so many people are holding onto their cash, is it smart to keep it in a savings account, or should we be putting it someplace else?

I asked financial planners and advisors what Americans should do with their savings — here’s what they told me.

1. Increase Roth IRA retirement contributions

One idea is to take a look at your retirement fund and see if it makes sense to move some of your savings into a Roth IRA.

Financial planner Dawn Santoriello encourages people to open a Roth IRA, if they are eligible, and contribute the max, which is $6,000 in 2021 (or $7,000 if you’re over 50).

“You will be protected from increasing taxes when you retire because the money will come out of this account tax-free. You pay tax now on the seed, but the harvest is tax-free,” says Santoriello. “This will have a huge positive impact on the amount of money you get to spend in retirement. With traditional IRAs, you don’t pay tax on the seed; you pay tax on the harvest.”

2. Pay down debt

If you’re carrying debt and haven’t started thinking about paying it off, Cécile Hult, a financial planner, says that putting your savings toward your debt might be a better idea than letting it sit in a bank account.

“Likely, cash at the bank isn’t paying much more than 0.01% in your checking account right now, but you may be paying a lot more than that in interest on various loans,” says Hult. “Start by paying down the debt with the highest interest rate. Credit cards are notorious for charging high interest rates, so start there.”

3. Invest wisely

The pandemic has also sparked a rise in people investing. A Charles Schwab survey showed that 15% of current retail investors began investing in 2020.

Financial advisor Grant Cooper recommends investing in a diversified portfolio.

“In investing, they say there is no free lunch. If you want to earn a greater return on your cash, you’ll have to invest, which comes with risk,” says Cooper. “A diversified portfolio utilizing low-fee index funds has become the preferred method among many novice investors.”

If you won’t need your savings in the next five or so years, investing it could be a smart way to build long-term wealth.

4. Add to that emergency fund

Even though many people were able to save substantial sums in 2020, many others suffered financially and had to tap (or drain) their emergency funds. Either way, financial planner Sarah Jane Paulson recommends making sure your emergency fund is fully funded.

“One third of Americans still wouldn’t be able to cover an unexpected $400 expense, according to the Federal Reserve,” says Paulson. “That tells me there are a lot of households who don’t have a full emergency fund, which is three to six months of full expenses. Emergency funds need to sit in cash. It needs to be ready to go when life throws a curveball. The best a person can do with that cash is to put it in a high-yield savings account.”

If you don’t have three to six months of savings in a high-yield savings account, direct your extra cash there before investing.

5. Go on that vacation

You might not expect a financial planner to tell you to spend your cash on a vacation, but that’s exactly what Joe Cope recommends.

“It might be odd to hear that from a financial advisor, but our clients’ mental health and well-being is equally important to their financial health. If you’ve established an emergency fund, paid down consumer debts, and have a good start on retirement, enjoy yourself and celebrate making it through a most challenging year,” says Cope.

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