Having a lot of money in a so-called "liquid" savings account doesn't make me feel confident or financially secure. I know myself well enough to know that I'm more likely to spend money that is easily accessible. I've also lived long enough to know that any emergency situation can be solved with a swipe of a credit card. Don't get me wrong. I don't want to go into debt over an emergency. However, I know I could easily move money from a more remote location such as a Roth IRA before the credit card bill became due.
Accessing retirement accounts
Even though I hope to never have to do it, I know I could take a loan from my 401(k) if I needed to. Also, I can take out the money I put into my Roth IRA as long as I don't touch the gains before I reach retirement age. I am not tempted to access money in my retirement accounts. However, if I have money sitting in an ordinary savings account, I can find a million ways to spend the money.
Tapping the equity in my home
If I was ever in dire financial circumstances, I could take out a home equity line of credit. According to Zillow, our home is now worth about $35,000 more than what we owe on our mortgage. I would rather not tap the equity in my home, but if I faced catastrophic life events, I'd be able to do it. By paying down my mortgage, I'm not only saving money on the interest, but I'm building up equity. My home is like a forced savings account for me.
Swiping credit cards
One of the reasons I like to use credit cards is because I can't stand debt. That may seem contradictory, but it's not. I almost always pay off my credit card balance in full. In fact, I often make the online payment to my credit card the same day that I charged the account. I am more likely to spend cash from my liquid savings account than run up credit card charges that might be difficult to pay off. Using credit cards actually prevents me from overspending.
Making my money hard to access
Instead of putting a lot of money in my check, savings and money market accounts, I try to keep most of my money tied up in stocks, bonds, mutual funds and exchange traded funds. When they stock market went down during the Great Recession, I was not tempted to sell any of my funds. Eventually my account got back to even and later made money. However, if I had kept the money in a savings account, it would not have had a chance to grow. I would have spent it.
Although it's wise to keep a little bit of cash handy for emergencies, I don't put more than $500 in my savings account. I keep two credit cards with high limits in case I have emergencies. Although having money in a savings account doesn't make me feel financially secure, I do feel more secure as I pay down my mortgage. My retirement accounts should also provide a comfy nest egg in the future.
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