Saver’s Paralysis: How Too Many Choices Can Stall Your Wealth Building

***Money is not a client of any investment adviser featured on this page. The information provided on this page is for educational purposes only and is not intended as investment advice. Money does not offer advisory services.***

Having too many places to put your money is not always helpful. Many would-be savers feel stuck when deciding where their cash belongs. High-yield savings accounts, certificates of deposit, brokerage apps, robo-advisors and retirement plans all have a place in a financial toolkit, but choosing among them requires weighing goals, risk tolerance, time horizon and other priorities.

Add Treasury bills and money market funds to the mix, and it is easy to see why some people end up with what can be called “saver’s paralysis.”

Must Read

What saver’s paralysis means — and why it happens

Sometimes the desire to make the ideal choice becomes so strong that it stops a person from choosing at all. Like analysis paralysis, saver’s paralysis can leave money sitting idle instead of growing. In many cases, saving imperfectly is better than not saving at all.

When people fear making the “wrong” decision, they may decide to do nothing. That hesitation can keep them from earning long-term returns.

How waiting can damage your finances

The downside is not only the returns you may miss. Money left in a low-yield checking or savings account can lose buying power over time because of inflation. If your money is not working for you in accounts that grow over the long run, you may have less financial flexibility later in life.

That does not mean every dollar should be invested. If all of your cash is tied up and an emergency comes up, you might have to sell investments at a bad time, potentially locking in losses. Still, keeping too much money on the sidelines can weaken a long-term financial plan.

Financial advisers often suggest setting aside an emergency fund equal to three to six months of living expenses. Money earmarked for short-term goals should also stay in a more accessible place rather than in the stock market.

A simple framework for getting past saver’s paralysis

Clear money systems can make complicated decisions easier and help you assign a purpose to every dollar. One method is to divide your cash into three groups based on when you expect to need it.

Money needed within the next month can stay in a checking account. A high-yield savings account that allows unlimited withdrawals without fees can also work.

Cash you will not need for one to three years can be placed in a high-yield savings account, a one-year certificate of deposit, a money market account or Treasury bills. Savings and money market accounts offer easier access, while CDs and Treasury bills typically lock in a set annual percentage yield until maturity.

Money you will not need for several years can be invested. Retirement savings should go into a 401(k) or another retirement account and/or an individual retirement account. A taxable brokerage account can also make sense for longer-term goals that are still a few years away, such as buying a home.