Money Confession: I have $30,000 sitting in my checking account, but I’m too scared to touch it

In this ongoing series, Mic readers submit their money confessions — and we’ll ask experts how to help solve these difficult financial issues. Send your own anonymous confession to moneyconfession@mic.com to get advice on your situation here.

The confession

“I have a stupid amount of money in my checking account. I inherited a bunch of family money that I truly wasn’t expecting, and now there’s around $30,000 in there, in the same spot where my paychecks come in and out. I haven’t touched it because I’m frozen by all of the options and by my fear of losing it. Help!”

Why this is an issue

It sounds like a great problem, right? So great that many people might not feel so bad for this week’s Money Confessor. But it’s not necessarily the dream scenario it might sound like, Ashley Johnson, chief operating officer and chief financial officer at Wealthfront, an investment app and website, said.

“Sometimes we have these windfall events,” Johnson said in a phone interview. “The company we’re working at goes public, or because your company does well one year, you get a bonus. The bottom line is good financial habits apply to everyone. Whether it’s a onetime windfall or if someone is squirreling away 15% of their paycheck, the same rules apply.”

The advice that follows, then, isn’t just for those who are suddenly gifted five figures. It applies to anyone who is paralyzed by extra funds sitting in a savings or checking account doing nothing for them — an occurrence that is incredibly common for millennials, especially millennial women. A SoFi and Levo League study published in April found that while over half of millennial women have the means to invest, 56% don’t due to fear.

“For the Millennial generation in general or anyone who’s lived through [the financial crisis], it’s natural to be inherently skeptical of putting money into the market,” Johnson said. “I also understand that women tend to have this confidence gap to investing their money. Either they feel they don’t have enough knowledge or they don’t have enough expertise to do it.”

You may think just sitting on tens of thousands of dollars isn’t hurting anything — at least you’re not losing it, right? — but that’s technically wrong, Paco de Leon, founder of the Hell Yeah Group, a financial firm geared at creatives, said.

“The reason why people believe that you should not just let a ‘certain amount of money sit in your account and do nothing’ is because of the reality of inflation,” de Leon said in an email interview. “Inflation is when things cost more over time. So let’s just say this young woman leaves the $30,000 in her checking account for 20 years. Twenty years later, the $30,000 won’t be as valuable. Her purchasing power has decreased.”

One way to combat this erosion of purchasing power is by getting a return on the cash through investing, de Leon said. “When you invest in the market, your money grows exponentially through the magic of compounding,” he added.

Johnson agreed.

“One of the hardest concepts for people to wrap their minds around is the power of compounding,” Johnson said.

Here’s a great way to visualize compounding with regard to investments: It means your money multiples while you do literally nothing. Sounds awesome, right?

The advice

You might think a random windfall should be used to pay off a major debt, like student loans, credit cards or a mortgage. But both Johnson and de Leon recommend establishing an emergency fund instead.

“General financial wisdom says that the first thing you should have saved for is an emergency fund,” de Leon said.

Johnson said you should do the math on your monthly expenses. “Take rent, utilities, car payments, whatever that might be, and multiply that by three to six depending on your comfort level,” she said. “First and foremost, I’d make sure that money’s set aside in a high-yield savings account.”

“First and foremost, I’d make sure that money’s set aside in a high-yield savings account.”

From there, she suggests paying down high-interest debts like credit cards — “debt is a guaranteed negative rate of return,” Johnson said — before setting up a payment plan for debts like student loans or mortgages. “Then the third thing is investing in a 401(k) or IRA. These are tax-efficient and set you up for the future.”

At that point, the Money Confessor is a financially solid individual — and then the fun starts. Well, a type of fun.

“How she distributes the rest of the cash is entirely up to her and should be dictated by her goals,” de Leon said. “The question of whether or not to invest and what to invest in is easily answered once you determine what your goals are. Some people have a goal of retiring by 40, some people have a goal of buying a Tesla and some have a goal of aggressively trying to get out of debt. Different goals will determine what you do with your cash.”

If buying a home or paying off loans is a medium-term goal, for example, one might want to keep the cash liquid for easier access. Otherwise, Johnson recommends hiring a low-cost money manager — here’s more information on finding one — to help figure out how to diversify your investment portfolio based on “age, income and risk appetite.”

In short, a random inheritance, gift, bonus or even lottery win is hardly an excuse to go on a spending spree. It’s an opportunity to finally establish a solid plan so you don’t have to fear medical emergencies, getting laid off or the million other anxieties life might hold. The worst thing is to stay afraid and to do nothing.

“Empower yourself to use money as a tool to formulate your future,” de Leon said. “The financial industry, just like any other industry, leverages your anxiety so they can continue to hold the power and so that you have to pay for advice or knowledge or access.”

If the alternative is your money actually decreasing in value, well, perhaps that’s enough motivation to finally get moving.

Do you have a horrible money habit keeping you awake at night, such as spending too much on Uber or ignoring your medical bills? Are you struggling to figure out what it means and how to solve it? Send your situation to moneyconfession@mic.com (we can keep your identity anonymous!) and we can work it out in a future column of Money Confessions.