10 Signs Your Cash Could Be Working Harder for You
Many people assume that as long as they have some savings stashed away, they’re in a pretty good financial spot. But letting your money sit idly in an account means it’s not doing anything to build you wealth. And experts say this is a big no-no.
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“As the CEO of a fee-only financial planning firm, I often see clients sitting on cash that could be put to better use,” said David L. Blain, CFA and chief executive officer at BlueSky Wealth Advisors.
Below are the 10 biggest signs your cash could be working harder for you.
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You Have Idle Cash in Low-Yield Savings Accounts
If you have significant amounts of money sitting in a low-yield savings account, your money isn’t working hard enough.
“Moving funds into higher-yield accounts or investments can generate better returns,” said Dennis Shirshikov, head of growth at GoSummer and a professor at the City University of New York. “For instance, high-yield savings accounts or money market accounts offer higher interest rates without sacrificing liquidity.”
Similarly, Blain explained that having large balances in low-yield savings accounts is a clear sign. “While safe, the returns barely keep up with inflation. I recommend exploring higher-yield options like certificates of deposit, Treasuries, or dividend stocks.”
Experts agree that even incremental increases in yield on a large cash balance can generate significant additional income over time.
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You Lack Diversified Investments
Relying solely on a single type of investment, such as bonds or a savings account, often means missing out on higher returns from a diversified portfolio.
“Diversifying into stocks, real estate, and other investment vehicles can enhance returns and mitigate risk,” said Shirshikov.
Melanie Musson, finance expert with Clearsurance, agreed that a major red flag is having all your assets in one investment. “A diversified portfolio is critical. If you have a solid investment portfolio but you’re not invested in real estate, it’s time to add that to your portfolio.”
You Have More Than $10,000 in a Single Savings Account
This one is a major no-no, said Musson, but it’s a money trap many people fall into.
“While you should have that much immediately accessible, you should make sure additional assets are earning more than what you can earn in a savings account,” she said.
You’re Not Utilizing Tax-Advantaged Accounts
Failing to contribute to tax-advantaged accounts like IRAs, 401(k)s, or HSAs means missing out on significant tax benefits and compounded growth. According to Shirshikov, maximizing contributions to these accounts can improve long-term financial health.
Blain agreed, adding, “These accounts allow your money to grow tax-deferred or tax-free, boosting your returns over the long run. For example, contributing enough to get any matching offered in a 401(k) is a savvy move that provides an immediate return on your money.”
You’re Ignoring Passive Income Opportunities
“Not exploring passive income opportunities is a clear sign that your money could work harder,” said Shirshikov.
He noted that investments in dividend-paying stocks, rental properties, or peer-to-peer lending can generate steady income streams.
Blain also noted that this was a wise move. “One strategy I frequently suggest is creating passive income streams, whether through real estate, online courses, affiliate marketing, or peer lending.”
Building these kinds of alternative income sources provides stability and flexibility. “For example, with real estate you can generate rental income and appreciation through strategic property investments,” Blain said.
The key, he added, is evaluating how your money is allocated and determining if it aligns with your financial goals. “A financial advisor can help analyze where you may be missing opportunities and recommend customized solutions based on your needs and risk tolerance. The rewards of putting your money to work for you can be life-changing.”
You Don’t Have a Reinvestment Strategy
Experts warn that simply saving money without reinvesting the returns can limit your financial growth.
“Reinvesting dividends, interest, or rental income can compound growth over time,” Shirshikov advised.
You Have Underutilized Employer Matching Programs
Not taking full advantage of employer matching programs in retirement accounts means leaving free money on the table. Shirshikov said that contributing at least enough to get the full match is essential.
You’re Failing To Maximize Rental Income or Returns
“As a property manager, I often see signs that clients aren’t maximizing their rental income or returns,” said Daniel Rivera, real estate investor and owner of Proactive Property Management.
One red flag, he explained, is if rent hasn’t increased in over a year. “In a hot market like Northern New Jersey, rents are consistently rising. Not increasing rent means losing out on potential revenue and equity.”
You’re Not Renegotiating Rent With Tenants
Another sign, according to Rivera, is having long-term tenants who haven’t had their rent renegotiated. “While tenant retention is important, long-term tenants often end up paying below-market rent.”
He recommended evaluating prevailing rents every few years and making incremental increases to match the market. “This boosts your cash flow without significantly impacting the tenant.”
You’re Not Generating Passive Income From Properties
“One strategy I often recommend to clients is exploring ways to generate passive income from their properties,” said Rivera.
This could include renting out storage space, allocating parking spots for a fee, or creating an additional revenue stream like coin-operated laundry. “The extra income, even if a few hundred dollars a month, can add up substantially over time.”
For larger commercial or residential properties, he said to consider if there are any unused spaces that can be leased out or repurposed.
“An empty basement or a vacated retail space presents an opportunity to bring in more rent. Work with your property manager to determine how these spaces can best be utilized based on demand in your area. The key is leveraging what you already own to maximize profits,” he stated.
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This article originally appeared on GOBankingRates.com: 10 Signs Your Cash Could Be Working Harder for You