Managing finances can be a tricky task for moms who stay at home. It’s understandable to want to keep some cash on hand for security, but simply letting it sit in a checking account isn’t the best financial strategy in the long run. Over time, inflation can cause the value of idle cash to decrease gradually, which means that its purchasing power will also decrease.

Excess idle cash is also a missed opportunity for wealth optimization. Think of it as a financial planning process where you start to understand how to make smarter decisions around managing your assets, better anticipate all the possible expenses, and improve the profitability of what you and your family already have. The ultimate goal is to increase your financial independence without sacrificing your quality of life today.

The question then remains, what should you do with excess idle cash?

As one might expect, the answer varies from one family to the next, but it almost always starts with financial goals and aligning those goals with your aspirations. Setting financial goals is about starting small and working up to bigger ones. Perhaps a good short-term goal would be to reduce your debt. Maybe setting a budget or starting an emergency fund are better places to start. As you go, you’ll then want to work on mid-term goals, like saving for your first home, paying off student debt, and so on. Long-term objectives, on the other hand, could include repaying a mortgage or simply saving for retirement. In any case, financial goals guide what to do with idle cash.

Understanding the Investment Options

Though this should go without saying, idle cash will eventually need a place to grow. Where you put it will depend at least partly on your risk aversion level concerning your financial goals. A high-yield savings account, for instance, is one such option and can now provide as much as a 5% annual percentage yield (APY). Cash management accounts have also grown in popularity, as they offer a mix of checking, savings, and investing.

Of course, the most common investment asset categories will be stocks, bonds, mutual funds, and exchange-traded funds (EFTs), as these are generally found in your traditional retirement savings programs. Then, there’s also real estate, private equity, certificates of deposits (CDs), money market accounts (MMAs), and even precious metals. The options are nearly endless. Again, your choice will be based on your risk aversion level and financial goals.

Now, it’s just a matter of optimizing the money you currently have on hand, and the following strategies are often the best places to start:

1. Finalize a financial plan.

Once you’ve defined your financial goals, figure out where you stand. Write down income, savings, investments, assets, and expenses. Then, determine whether any opportunities exist to save and, more importantly, if all the expenses are necessary. Now that you know how much idle cash is available, strategize how to use those funds to reach your objectives — while keeping in mind any future scenarios that might change the trajectory. Does anyone get an annual bonus? What about a tax refund? Is someone going to college soon? From there, commit to at least one of your short-term goals and start saving.

2. Review investment performance.

If you decide to invest, make a habit of monitoring your portfolio performance. The frequency has no hard and fast rule. Just choose when to check it and maintain the timing to ensure no dramatic change in direction. Also, make a plan for when to rebalance your portfolio. If, for example, it starts shifting away from your target by a large enough percentage point, it may be time.

3. Diversify your investments.

It’s no secret that diversification is important for an investment portfolio. It’s one of the most effective means of managing risk. Understand, however, that there is a range of diversification strategies. What works for one person may not work for you. Still, it often entails limiting the exposure too heavily on a few asset classes, adding index funds to your stocks and bonds, keeping cash in your portfolio, investing globally, and, as already mentioned, rebalancing your portfolio periodically.

4. Keep yourself marketable.

Part of your investment strategy should be investing in yourself, as you may eventually reenter the workforce. Some of that idle cash should go to keeping yourself marketable. Maintaining your network will be key if you’ve already established a career. Go out to lunch with former colleagues, schedule a happy hour every quarter, attend conferences, subscribe to trades, or even take a class or two. Maintain your skills or develop new ones. Doing so increases the chances of securing a good salary should you return.

Idle cash isn’t working for you. And while it’s always important to have some funds on hand, too much sitting idle can cause you to miss out on many opportunities to reach even the smallest financial goals. Understand your finances, develop a plan, and invest in what you feel comfortable with. Start small, and optimize your wealth from there.


About the Guest Post Author:

Prashant Kumar is the Founder and CEO of Payference. After two decades of leading global teams, he decided it was time to make optimized cash management available to organizations that wanted the same benefits without paying for all the extras they didn’t need. See why Payference is the preference of finance teams looking for uncomplicated cash control and what to do with idle cash.