Should You Boost Your Savings Before 2022 Ends -- or Put More Money Into Your Brokerage Account?
- Boosting your savings could better set you up to manage during a recession.
- Investing your spare cash could allow you to capitalize on the current down market.
It's an important question to ask.
Inflation has been surging over the past year and change, and so right now, many consumers are overwhelmingly cash-strapped. But what if you're in a different boat? Maybe you do a good job of budgeting and limiting your spending so you have money left over at the end of month.
If you're sitting on extra cash, you may be wondering where to put it in the coming weeks. You may be tempted to stick it into your savings, but you may also be contemplating investing it. The question is: What's the right call?
The upside of funding your savings
For months on end, financial experts have been sounding warnings that a recession is likely to strike in 2023. The Federal Reserve has been aggressively hiking up interest rates in an effort to slow the pace of inflation. In doing so, it could lead to a huge pullback in consumer spending that fuels a recession and drives a major uptick in unemployment levels.
That's why now's a good time to pad your savings account. The more money you have there, the more cash you'll be able to tap if you end up losing your job in 2023.
The upside of investing in a brokerage account
The past 10 months or so have been pretty rough on stock market investors. But because stock values are now down, you have a prime opportunity to scoop up shares of quality stocks at a discount. And that's reason enough to stick your spare cash into a brokerage account and use it to build up your portfolio.
What's the right call?
If you have extra money, it's easy to make the case that it belongs in your savings. But it's also easy to argue that now's a good time to invest.
To make the right choice, assess the state of your savings. Before the pandemic, the general convention was to have an emergency fund with enough cash to cover three to six months' worth of bills. In the wake of the pandemic, some experts are saying you should aim for a higher level of savings -- enough cash for eight to 12 months of expenses.
If you're sitting on three months' worth of bills in your savings account, then you may want to prioritize boosting it in the coming weeks. But if you already have a solid nine-month emergency fund, then you may feel comfortable putting that extra cash of yours into a brokerage account and investing it so it can potentially grow into a much larger sum over time.
Remember, too, that your choice doesn't have to be one or the other. Let's say you can cover six months' worth of bills based on your current emergency fund. If you're sitting on $5,000, you might put half into your savings account and the other half into a brokerage account. That way, you can buy yourself more peace of mind by boosting your cash reserves while also jumping on the chance to buy stocks when their value is down.
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