What To Do With Savings

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The Question…

DFA reader Stacy asked:

I have $20,000 in a savings account and almost no debt. What is the smartest, most conservative way to invest my money. Sitting in a savings account feels like a waste.

The Answer…

Great question Stacy, let’s take a look.

My recommendations are to:

  1. keep some cash in savings for use in emergencies (emergency fund)
  2. keep some cash in savings for your next vehicle rather than financing it (auto fund)
  3. keep some cash in savings for fixed non-monthly expenses
  4. invest the rest in safe, passive investing vehicles.

Emergency fund

Be sure to keep enough cash in a savings account to cover three to six months expenses. If your monthly expenses are $3,000/month then keep between $9,000 and $18,000 in your emergency fund.

Do not invest this, it is for emergencies and needs to stay in liquid cash form so you can get to it quickly and easily when needed.

Next auto fund

Do you own your current car? If so, great, but be sure to save for you next vehicle so you don’t have to finance the purchase.

Financing vehicles is a waste of money. Some people can’t avoid it, but those with liquid cash on hand can, and they should.

Don’t buy new either, buy solid used vehicles that are a few years old. This helps you avoid that huge loss in value when new vehicles are simply driven off the lot.

I’ll never finance a vehicle again, and advise you to adopt the same position whenever possible.

Fixed non-monthly expenses

Stacy, are you budeting for fixed expenses that you know are coming, but are not monthly? I call these fixed non-monthly expenses.

Examples of these expenses are:

  • auto insurance (we pay once every six months)
  • bulk beef (we buy a quarter grass fed cow every year)
  • CSA membership
  • continuing education.

These expenses can be budget busters, but not if you plan for them!

Make a list of all your fixed non-monthly expenses, figure their cost on an annual basis, add the total amount up and divide by 12. This gives you the monthly amount you need to save to have enough money for these expenses when they arrive.

We created a separate Capital One 360 savings account called “Fixed Non-monthly Expenses” that we use to hold the liquid cash, and we tap that fund whenever one of these payments comes due. It is very useful and it saves us from having “budget busters.”

Invest the rest

Many people invest before they build adequate savings.

While it can be tempting to put all your savings into investments, it’s often not the best decision.

You need liquid cash too!

Keep liquid savings for the things mentioned above (plus any other needs specific to your situation) and invest the rest.

I too like conservative investments, and I prefer them to be mostly passive. In other words, I’m not going to advise you to go out and day trade stocks.

My recommendations are to invest in index funds and peer lending.

Open a brokerage account with Vanguard and invest in their target retirement fund that best fits your situation. This will give you diversification, balanced risk, and hands off conservative investing.

Another great option is to open a Betterment account. Betterment has built an amazing platform that helps new investors safely navigate the waters of the financial markets with confidence. Read my Betterment review and consider opening an account.

In conclusion

Right now Betsy and I have enough money saved for emergencies, our next vehicle, a years worth of fixed non-monthly expenses, and we’re investing the rest.

It feels good to be prepared.

Does anyone have any other advice for Stacy?


Betterment is one of my two favorite ways to earn interest on my savings! They have an awesome program for the Average Joe to save and invest simply and effectively. There are no minimum balance requirements and no transaction fees. Read my Betterment Review or open an account to get started earning now.

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