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The good things of prosperity are to be wished; but the good things that belong to adversity are to be admired. — Lucius Annaeus Seneca, Roman Statesman, 5 B.C. – 65 A.D.

Would you describe yourself as a saver or a spender; or are you the perfect blend of both? Attitudes, beliefs and much of our behavior concerning money is established when we are young. Helping children establish by allowing them to earn an allowance, budget and set priorities for some of their own expenditures is a great introduction to the realities of life.

The first investment vehicle for many of us “baby boomers” as we embarked on the road to prosperity was a passbook savings account. Following a weekly trip to the corner store for candy and a visit to the record store to purchase the latest 45 RPM (ask your parents to explain this if you don’t know what it is) we’d deposit the remainder of our allowance in a passbook savings account and watch the balances grow. At the time these were VIP financial transactions and required a bank representative to visit our school. This was a great way to establish a pattern of saving and putting funds aside for the future.

In the first quarter of 2007 the personal savings rate was —1 percent, the lowest savings rate since Franklin Delano Roosevelt took office in 1933, in the midst of the Great Depression. Opinions vary — we have national leaders who instruct us to save more or we’ll soon find ourselves living under the Jolley Bridge, and then there are economists like Ben Bernanke, who before he became chairman of the Federal Reserve suggested the poor savings rate in the U.S. is to some extent the product of a “global savings glut.” That is, foreign savings pouring into the U.S. investments help keep lending rates low, fatten stock portfolios and stimulate wealth accumulation.

This is not to say the negative savings rate is a good thing. It isn’t. Too many households pay high interest rates on large credit card balances, dip into home equity for various purposes, invest far too little in their retirement plans and exhibit a free-spending psychology difficult to reverse when the good times come to a halt.

So how much savings is enough? Our financial situations have become more complex, yet the concept remains the same. Keeping some cash in reserve for emergencies is a wise strategy, but allowing too much to sit idle is to ignore opportunities to improve your financial position.

If you think you may have too much cash on stand-by, you can decide to make some of it work harder for you. Before you act on that idea, however, be sure you have no debt that should be paid off (credit card debt, for example) and that you have fully funded your retirement plans. Then assess your true cash needs, taking into account such things as job security, housing situation and your health and that of your dependents.

How much is needed?

Determine how much cash you really need to keep totally liquid — money you can easily access because you have it in a bank savings account or money fund. The general advice is to keep in reserve the equivalent of from three to six months’ wages. That money is to cover a critical, unexpected financial crisis. However, not all of it needs to be kept in a checking or savings account.

You might find $10,000 to $15,000 adequate to cover three months of basic expenses. If you have a much larger cash reserve, and if it far exceeds your likely short-term needs, perhaps some funds should be shifted into your regular investment portfolio money market. For the rest of the cash you want easily accessible for short-term needs, investigate alternative ways to keep it within easy reach, yet make it work harder for you.

Cash in deeper reserve

In addition to the higher-paying money market accounts, consider bank certificates of deposit, which are insured up to the usual FDIC limits and usually offer a slightly higher interest rate.

Although there’s no assurance that this trend will continue in the future, these days, the shorter-term certificates are paying as much or more than the longterm versions, so you may wish to consider creating a rolling ladder of three-month CDs by purchasing three of them, one to mature in four months, one to mature in five and another to mature in six months.

If at maturity you don’t need the cash, reinvest to keep the ladder rolling. These funds, although not immediately available (without penalty), will become accessible as your liquid cash is used up, if your crisis reaches beyond three months.

The tax-free alternative

If you are in a high tax bracket, don’t neglect checking into tax-free securities that may provide you with a better return. Those who have the “luxury problem” of a higher tax rate should do the math before opting for tax-free investments.

Determine your tax bracket as a decimal (for example, .28), subtract from one (.72) and divide the yield by the result. So a tax-free investment yielding 4.67 percent, divided by 0.72 (6.486), lets you know that your taxable investment would have to yield more than 6.486 percent to beat your tax-free 4.67 percent.

Finding the taxable equivalent yield is the best way to compare rates and determine what is truly in your best interest — pun intended!

There are other, more complex, options that might be suitable for your extra cash, and I would be happy to discuss them with you. If you have concerns about how to make your cash reserve work harder for you, just give me a call.

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Darcie Guerin is a financial adviser and branch manager at Raymond James & Associates Inc. at 606 Bald Eagle Drive, suite 401, Marco Island. Contact her at Darcie.Guerin@raymondjames.com, 389-1041 or toll-free (866) 343-0882.