What if I told you that keeping your money safe in the bank is actually one of the most dangerous things you can do with it?
Through my nine years working in banking and now helping people with their personal finances, I've seen this same mistake over and over again.
People keeping tens of thousands of in their accounts, feeling satisfied that the bank balance is growing, thinking that they're being good with their money.
But actually the complete opposite is true.
There's over 526 billion sitting in low interest accounts in the UK right now, earning basically nothing.
That's impacting 29 million people.
And in the US, half of Americans have more than $8,000 sat in similar accounts.
All these people are losing money every single year, completely unaware about it.
So in this video, I wanted to share with you why having too much cash is one of the most dangerous mistakes you can make when it comes to money.
And we'll also cover what you should be doing with that money instead.
Let's get into it.
First and foremost, cash is the laziest worker you'll hire.
You know that feeling when you've just finished another exhausting week.
You worked overtime, you dealt with difficult colleagues, you sacrificed your evenings, maybe even the weekend.
Put in the sweat, put in the stress, the mental energy to make say, 10000 and you put it in a bank account.
You check that bank account after a year and your money has just sat there, been lazy and hasn't created any more money for you in that time frame.
Not only that, but it's now also worth less than it was a year ago.
It's the same 10,000, but you're able to buy less with it because of inflation.
That's what happens when you keep your money saved in a bank account.
It sits there motionless, doing nothing for you whilst you're out there working really hard.
Now what if instead, instead of putting that money in a bank account, you decided to put it somewhere else where it continued working for you whilst you continued making money?
It also went out and made some extra money for you.
That is what investing your money is.
If you put that same 10000 to work in something that generates say, 8 returns and I'll talk about in a moment how to do that safely after one year it becomes 10800.
Then that 10,800 goes And the second year becomes $11,664.
And each year from then on, you're earning more money on your money that you no longer have to work for.
Over 10 years, your lazy cash that did nothing for you stays at exactly $10,000.
But the money that went out and made more money for you grew to over $21,000.
That's more than double.
An extra over 11000 that you never have to sacrifice another evening or weekend to earn just because you put your money to work instead of letting it sit in cash doing nothing for you.
This is one of the biggest reasons why you don't want to be keeping more than you need to in a bank account, because you're just missing out on potential earnings.
Moving on to point number two, the emergency fund trap.
I know what you're thinking, but Nisha, what about emergencies?
You've always said we need to save an emergency fund.
The point of an emergency fund is, in a worst case scenario, if you lost all your sources of income, do you have enough money saved up so that you can continue paying for your living costs for the foreseeable future?
So much so that, if there was an emergency, you're not left without being able to pay for shelter or for food.
And when you strip away everything else except those core living expenses that you need to think about, that's mortgage or rent payment groceries, essential bills, minimum debt payments, whatever that total is, multiply it by three for the basic emergency fund.
Or, if you want more protection, multiply it by six.
Also, if you're self-employed or you have an unstable employment situation, you can multiply that by nine.
That's the size your emergency fund needs to be.
It does not need to be more than that.
When I worked in banking, I had colleagues with 40000 50000, 70000 in their accounts telling me it was their emergency fund.
But when we broke down their actual monthly living expenses just those core living expenses that we spoke about their real emergency fund was less than half of that.
The rest was just fear money, sitting there losing value every single day.
So yes, save up your emergency fund and make sure it's A sitting in a high interest savings account and B easily accessible, with no fees needed to withdraw.
That's all you need for an emergency fund.
Personally, I'm currently saving my emergency fund in Plum.
They're offering around 4 on their easy access savings, which means it's very accessible and and it's saving my hard-earned money from inflation.
Link is in the description if you want to check it out.
The third reason, and I made this mistake this year, is because it will feel like spending money.
Having too much money sitting in your account actually tricks you into spending more.
If you think about it.
You check your bank account, you see 15000 sitting there and your brain goes oh, I've got loads of money.
So you buy those shoes you've been eyeing up, you grab dinner out instead of cooking.
Maybe you book that weekend trip because In your head you're still thinking I've still got lots of money in my bank account.
I'm still rich.
But here's the problem.
That $15,000 wasn't actually meant for spending.
Most of it was your emergency fund or money you were saving for a house deposit or just cash you hadn't figured out what to do with yet.
But because it's all lumped together in one account and you see the size of that amount, it feels like spending money.
I experienced this myself recently.
I recently switched bank accounts.
And so for a couple of months, I didn't have my automation set up.
And so when I was earning, it was all getting put into one account.
And I realized after a few months, my spending had increased.
I was making these impulse purchases.
I normally wouldn't because I could see the money just sitting there.
So I had to quickly set up my system again, where the money gets invested directly from my business account before I even pay myself a salary.
And then I pay myself a salary.
And then from there it goes into other investments, my personal investments, towards my bills, towards my savings.
And it's all automated.
The key is making sure your money is out of sight before you can spend it unnecessarily.
If it's automatically moved into investments or into different saving accounts before you can even see it.
You are so much less likely to make those impulse decisions.
By the way, if you're watching this and you know you need to be doing more with your money, but you feel overwhelmed even when you're just thinking about how to start, I've got a six-week investing accelerator program that is about to launch this October.
It's designed to cover absolutely everything you need to create your path to financial freedom in just six weeks.
And it will also, for the very first time ever, include one-to-ones with me.
You can find out all the details in the link in the description and sign up if you want to join the waitlist.
Moving on to the fourth reason, and that is because insurance won't cover you if you save too much.
Here's something that might actually surprise you.
There is a limit to how much the government will protect you if your bank goes under.
In the UK, the FSCS only covers up to $85,000 per person.
In the US, it's $250,000 through FDIC protection.
So if you're thinking, okay, well, I'm nowhere near those limits, then you're probably fine.
But if you are approaching or exceeding these amounts in a single account, you're just taking unnecessary risk.
You might be saving this money for a goal that's happening in the next five years, which is why you might not want to be investing it.
The solution is to ask yourself why is it that you need that much money sitting idle in the first place.
The only reason why you might need it on top of your emergency fund is if you're saving for a specific goal that's coming up in the next five years, like maybe a house deposit, paying for a wedding, a car purchase.
For that the five-year rule matters, because the stock market can be incredibly volatile in the short term.
Your investments might be worth 50000 today and then 45000 next month, and then 55000 the month after that.
And if you need that money in two years for a house deposit, you can't afford to risk it being in a dip right when you need to buy.
You'd be forced to sell at a loss, which kind of defeats the whole point of investing.
But for money you won't need for the next five years.
The short-term volatility will end up smoothing out over the long term.
And so you benefit much more from long-term growth.
So if you do have large amounts earmarked for short-term goals, spread that into cash across multiple banks to stay within those insurance limits.
But anything above your emergency fund that you won't need for at least the next five years, that should be invested where it can automatically grow for you, rather than sitting in an account where it's losing its value to inflation and potentially at risk if you exceed the insurance limits.
And then moving on to one of the biggest reasons, and this is you become more of a target.
If you're watching this and thinking, oh, it's fine.
I don't need to worry about this point because it's not going to happen to me.
I'm all clued on.
It really isn't something worth being complacent about.
Scams are becoming incredibly sophisticated.
They can even impersonate someone's voice.
And there was a tweet I read just this week.
It was from Eric Bergman.
He's a multimillionaire.
He founded great.com.
And he recently shared a story about how he got scammed.
He got a call from Mr Beast to donate money to Team Water that helps build wells in Africa and helps people get clean water.
And he donated $1 million.
And then, a week later, he got a WhatsApp message from Team Water, the company that he donated to, And they were inviting him to join a group with Mr Beast and some other billionaires for a trip to Africa.
And after a week of back and forth in this group chat, Mr Beast announced that he had early access to this new Coinbase crypto coin.
And he wanted to share it with all these big donors that were in this WhatsApp chat.
And then everyone got really excited.
They started investing.
And Eric said how he didn't know much about crypto, but he didn't want to be left out.
And so over three days, he sent 12 million dollars in three different rounds for this coin.
And just as he was going to invest some more, something fell off and he decided to call the real Mr Beast to confirm everything.
And Mr Beast had absolutely no idea about the entire situation.
Everything was fake.
The whatsapp group was fake, the people in it was fake, the trip to africa was fake, the queen, all these billionaires it was a complete made-up scenario, purely to scam him.
You can read about it online.
He's also tweeted about it.
Such a courageous move and it really is to drill down or drill home the importance of this.
You can be anyone, you can be the smartest person in the with millions in your bank account and get still caught in something like this.
Just don't take the risk.
Be really cautious.
Put as much money as you can into sensible investments that you understand, before you do anything that you might completely regret.
On that note, one of the most sensible investments that you can make alongside investing in assets is investing in yourself.
And with that, I wanted to introduce the sponsor of today's video, which is Brilliant.
Brilliant is an online learning platform that I use and love.
It takes super, super complex topics that we know and use and think about in everyday life ai, data analysis, crypto and it breaks them down so they actually make sense.
You can learn by doing, not just reading, with so many interactive lessons covering everything from maths, from data analysis to programming and AI.
What I love about Brilliant is that it helps you build a learning habit in just a few minutes a day.
I'm always saying that consistency beats intensity and Brilliant makes this so easy to stick to.
You can learn on your phone wherever you are.
So, whether you're just waiting for your coffee or you have a few minutes between meetings, you can just squeeze in a quick session and actually make progress.
Think of it like a gym for your brain.
You get daily challenges in science, in coding, in problem solving, even designing circuits and running data simulations.
So, whether you're a student, you're a working professional or you're just someone who loves learning new things, Brilliant will have something for you.
You can try Brilliant at brilliant.org forward slash Nisha.
I put the link in the description below or you can scan the QR code on the screen right now.
Brilliant is also giving our viewers a 20 off of an annual premium subscription, which gives you unlimited daily access to everything on Brilliant.
Thank you Brilliant for sponsoring today's video.
If you've got to this part of the video and you're wondering what do I need to do with my money, then
The takeaway here isn't that you need to panic and move all tomorrow.
But, given all the points you mentioned today, it's very worth being intentional with where your money sits and making sure it's working as hard as you are.
So three steps you can take right now.
First, calculate your emergency fund number.
Once you know how much you need, make sure you're saving that somewhere that you can't touch it and you can't see it.
And something that's also paying you a good interest rate, something around 3% to 4% right now.
Second, outline your short-term goals.
Anything that you want to do in the next five years.
You can also save in a higher interest savings account or a fixed term account.
For everything else, your long-term wealth building, get it invested in diversified index funds, specifically through tax-free accounts.
Index funds, target day retirement funds, even look into robo-advisors.
I won't go into detail on this video.
I've got lots of other videos on this channel that talks about this in more detail.
And third, make sure you're subscribed to this channel.
We post weekly videos.
We've just had a bit of a break, but we're back now.
We talk about how to manage your money in a way that gets you closer to your life goals, and in a way that isn't overwhelming, intimidating or making you constantly feel like you always need to do more.
Thank you and see you next week.
