Today I’m going to start off by asking a couple of questions…
Are you carrying any high interest debt?
Do you have any money in the bank?
If you answered yes to both of these questions, then let me ask another one…
Just how much money do you have in the bank?
The reason I ask is that a surprising number of people are holding excess cash in the bank while paying ridiculous interest rates and failing to get out of debt.
Sure, you need an emergency fund — and you might want one that’s somewhat larger one than normal given the current economy — but you’re making a mistake if you’re sitting on more cash than you really need.
On the one hand, this is a good problem to have. After all, there are tons of people out there who are in debt up to their eyeballs and have nothing to fall back on. On the other hand, if you’re sitting on more cash than you truly need, then you’re paying a ton of unnecessary interest while earning a pittance from your bank.
My advice: If you think I might be talking about you, sit down and carefully consider how much money you really need to have sitting in the bank. $1000? Six months of expenses? Twelve months of expenses? The “right” answer will vary. But if you’ve got more than that amount stashed away, use the excess to attack your debt.