Activate Your Money

CHAPTER 5Cash Alternatives: Yield Higher Returns for Idle Cash

In the previous chapter, we suggested you keep three to six months of expenses in cash for emergencies. Like many women, you might have even more in cash than you need for this purpose. Perhaps you're saving for a major capital expense, like buying a house or starting a business. Or maybe you just feel better with a larger cushion. Whatever your reason, you might want to consider putting your excess money into cash alternatives, which are relatively low-risk, short-term investments that provide a higher return than savings and checking accounts.

Let's say you wanted a one-year emergency fund. You could set aside the amount you need to cover several months of expenses in a savings account and put the remainder in cash alternatives that have a term of three to 12 months. The beauty of this approach is if you need that extra cash, it will be ready for you before your emergency cushion runs out, and it could be earning higher interest than if you had left it in your savings account.

I'm a perfect example of the situation in which many women find themselves. I, too, had more money than I needed in cash. In my case, it was because I was trying to figure out where to invest my assets. Since I didn't have the time to think about it, significant sums sat in cash accounts. When I asked my financial advisor about values-aligned alternatives to my current savings accounts, I was told not to worry, because it was just cash and ...