Four Great Cash Strategies to Stay Ahead of the Recession - Don't Miss Out!

Welcome back to another episode of We're Talking Money. I'm Dustin Hocken, and today we're going to be discussing the best places to put your cash in 2023. In a normal year this is a fairly easy question to answer, but 2023 is different. Today I'm going to discuss four strategies that you can't afford to miss.

More and more I'm having this conversation with clients: I have all this cash, but what should I do with it? Most years that's a fairly easy answer. Let's start to put the money to work throughout the course of the year using a dollar cost averaging strategy.

For those of you that don't know what dollar cost averaging is, it's where you take a portion of the money and invest it at predetermined times in the market, regardless of what the market's doing, taking all the emotion out of your decision. This could be monthly, quarterly or even more frequent. The best example of this is your 401k. Every paycheck you put money aside into your 401k to be invested in the market. That's dollar cost averaging, and it can be a great strategy.

But what about this year? At the time of this video it's mid-March 2023, and we at OmniStar believe that it's going to be a tough year in the market and the market is currently overpriced. So what should we do? Here are the top four strategies for your cash for 2023.

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The first step in deciding what you should do with your cash is determine how much cash you truly need. You always need an emergency fund if you're planning proper. This is important. The CFP Board's rule is that if you're a dual income household, you need at least three months of living expenses sitting in cash at all times. If you're a single income household, you need six months of cash sitting on the sideline at all times. We need to do this before anything else.

Once you know what your emergency needs are, try your best to maximize these dollars. Don't just sit this money in a checking or a savings account that's earning no interest. One positive from a rising interest rate environment is now we can earn more on savings, checking and money markets. We may just have to do a little shopping around. This is a very easy way to earn a little extra interest. Fidelity, for example, has a money market earning 4.2 percent right now. This is a great option for your emergency fund. Please reach out if you'd like to talk to our team about this high interest savings option.

Our next strategy. So once we know how much we need for an emergency fund, and now that we have that emergency fund sitting in a higher interest account, what should we do with the rest? I would argue that if you haven't maxed out your Roth IRA for 2022, this would be the next best place to go. The maximum that you can put into a Roth IRA for 2022 is six thousand dollars, and if you're over 50 you can put an additional one thousand dollars. We have until April 18th 2023 to contribute for 2022.

Like I mentioned before, we're not going to invest this money. We're actually just going to sit in Fidelity's money market that's earning 4.2 percent. We'll gladly take that while we ride out the storm. We'll invest this cash down the road, likely in late 2023 or early 2024, but most importantly, we didn't miss out on our Roth IRA contributions for 2022.

If you're not sure what a Roth IRA is, please watch our video on everything you need to know about a Roth IRA. Despite popular opinion, regardless of how much money you make, you always can contribute. Watch the video to find out how.

Strategy number three. So let's assume that you've maxed out your Roth IRA for 2022 and potentially 2023. So what's next? One strategy been using at OmniStar is a treasury ladder. This is a great way to save safe dollars while still earning a nice return. Recently 12-month treasuries have been as high as 5, but we might not want to tie up all of our money for the full 12 months, because we might want to deploy some cash as soon as the market starts to drop.

The best way to do this is to do a treasury ladder. We purchased three month, six month, nine month and 12-month treasuries. This allows us to have money due every three months, and we can decide what to do with it. We want to buy a new 12-month treasury, therefore getting the five percent roughly, or should we go ahead and push that money into the stock market?

Strategy number four: pay down debt. This could be number one on our list, but I put it down on the list because I assumed if you have a lot of cash on the sideline, this is already taken care of. But it is worth mentioning. If you have high interest debt, say anything over seven or eight percent, this should be paid off first. Try to knock this out as quickly as possible so you have additional dollars available, ready to be invested when the stock market drops later this year.

Here's three simple rules if you're not sure which debt to pay down first. The first rule is pay down anything that's over eight percent. Simple. Second rule is pay off anything that you can to dump. The third rule is to pay off anything that's used to purchase depreciating assets, such as credit cards.

Maximizing your cash at a time like this may seem like a daunting task, and you might not know where to turn, but help is out there. We hope this video has inspired you to take a closer look on how you're maximizing your cash position and taking advantage of current market opportunities. Remember, it's always a good idea to consult with your financial advisor before any financial decisions to ensure you're taking appropriate steps for your specific situation. If you have questions over your extra cash, the professionals here at OmniStar would be happy to help you plan for a brighter future.

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