Recently we have met with several families that have a stockpile of cash earning, well, nothing. This interest rate environment is frustrating especially when you know the cost of living is increasing at a faster rate than what a savings account, money market or CD will earn - and pay you. And doing nothing is actually doing something: it is costing you money. Most people think they basically have two options right now regarding cash. Number one is to take more risk. Number two is to spend it. We believe there are options out there that may be slightly – or infinitely - more appealing. So how about 5 of them?
What about using that low interest rate to your advantage? Do you support your church or a charity? Consider using your cash to create some massive tax savings. There is a charitable investment tool that currently allows you to get an immediate income tax deduction of 70-75% and the best part is it pays you back. All of the interest in capital gains created by the investments of this fund will be paid back to you and your spouse and continue through your children’s lifetime. Then whatever remains in the fund will go to the charity you have chosen. In layman's terms, although certainly not guaranteed, this means your family could potentially receive back everything you have put in the fund if it appropriately structured and managed.
Speaking of gifting… what about your children's and grandchildren's education? There might be two ways you can add significant value to their long-term financial picture. If they are young, consider purchasing pre-paid tuition. Historically, tuition prices have experienced close to an 8% annualized increase. 8%! Why take the risk with investments within a 529 plan or other investments when you can pre-pay a portion of their college tuition at today's prices? Another idea you might consider for adding value is helping them with student loans. Student loan interest rates are downright appalling. They are probably paying somewhere in the neighborhood of 5-6% in a very low interest rate environment. Even if you don't want to give them the money to pay these loans off, you might be able to accomplish a win-win scenario. You can loan them the money at a lower interest rate than they are currently paying and you yourself could receive a much higher interest rate than any CD could pay you in today's environment. However, personal bankers beware: with an intra-family loan, there is always family risk!
Take care of your "I've been meaning to do that list." We all have one, but everyone's is different. You may need to visit your estate plan, have that family retreat to discuss wishes, build your financial plan, evaluate your business succession plan, do some heavy tax planning. These issues will need to be addressed, hopefully sooner rather than later – and today’s dollars are always cheaper than tomorrow’s
Or what about paying for inflation? We all know we need to develop a “longevity plan” and long term care is one of the most, if not the most, important element of this. A good question to ask yourself would be, "If you needed to start receiving long-term care at $6,000 per month, where are you going to get the money first?" The most common answer would be that stash of cash. So why not put it to work today at least keeping up with the cost of care increasing every year? And by the way, if set up correctly, you could still have 100% access to that cash just like it is today.
Someone important in my life once told me to spend my money on two things: other people and experiences. Giving to people gives back to you and experiences are memories you will always have. Everything else is just stuff and the joy of stuff goes away. Travel is downright cheap today. There are currently flights to foreign countries for under $500, round trip to Australia is around $1,000, Japan can be reached for $426! Lower oil prices have helped this tremendously, though that does tend to rebound. Work on your bucket list and spend some time with people you cherish most. Consider just what would be an unacceptable regret?
Bottom Line: Don't let 2017 go by without spending...or saving that stash of cash earning nothing!