Just because people make a lot of money doesn’t mean they are set financially. Particularly when they’re young and earning six-figure salaries, the temptation to live carefree is difficult to ignore. But you can squander a lot of opportunities by simply living for today.

At some point, though, reality hits and the need to reign in your spending and get your finances in order takes over. That’s the position Redditor Such_Reaction_4462 finds herself in a post on the r/ChubbyFIRE board, a subreddit focused on financial independence and retiring early, while also being able to still live the good life. 

The woman and her husband are doing quite well for themselves. She is a stay-at-home mom while her husband earns between $425,000 to $500,000 in any given year. They own two homes with a combined value of $1 million and rent one of them out to a family member at cost.

The couple have a 401k retirement plan with $225,000 in it, a brokerage account with $80,000, and $200,000 in cash burning a hole in their pocket. They’re fortunate to have no other debt, are trying to save $4,000 to $5,000 a month, and have $60,000 in an emergency fund, which covers six months worth of expenses.

What Such_Reaction_4462 wants to know is, what should she do with the $200,000? They came to the realization they need to get back on track with their FIRE goals and the excessive spending they’ve been enjoying can’t continue. What would be the best place for their cash?

24/7 Wall St. Insights:

• Young, high wage earners have the temptation to let the good times roll and live for the moment without sufficiently planning for their future, making it difficult to achieve financial independence.
• If you want to retire early while not depriving yourself of some of life’s pleasures, you have to save more. If you have extra cash available, finding the right investment vehicle is paramount.
• Don’t leave your idle cash in a checking account that pays you zero interest. See how switching to a high-yield savings account can earn you hundreds, if not thousands, per year. You might be able to do even better in an index fund.

Hitting the ground running

The first thing to notice is they’re not in a terrible position. They’re not starting from zero. And since both are in their early 30s, they have plenty of time to achieve their goals as well as having the financial means to do so. We should all be so fortunate. Still, as the saying goes, mo’ money, mo’ problems. 

The second observation is they’re not saving enough of their income. While putting 10% towards savings is a good place to start, 15% to 25% is better, especially for high wage earners like this couple (albeit being a single-income household). They really need to cut back on the extravagant living if they want financial independence and early retirement. 

But the question she wants to know is, where should she park that $200,000? She leans towards a high-yield savings account. Most accounts offer rates between 4% and 4.5% these days, but by shopping around with online banks you may find 5% rates.

But the Federal Reserve is now committed to cutting interest rates, which could have a ripple effect on savings accounts. You should probably stay away from brick-and-mortar banks as their rates are paltry, regardless of what the Fed’s rates are.

The best place for idle cash

But are there better options? While there are any number of vehicles one could choose — certificates of deposit, money market accounts, etc. — stashing the money in an S&P 500 index fund just might be best. 

Because this money isn’t needed for emergencies, but is instead for savings, betting on the long-term growth of the stock market by parking the money in the Vanguard S&P 500 ETF (NYSEARCA:VOO), for example, gives you the chance to earn its historical 10.5% average returns. Of course, don’t touch the money for at least three to five years, though for a decade or more is better.

It won’t be a straight shot higher for those kinds of returns. The market has posted double-digit returns for several years running. A pullback should be expected. Yet so long as you don’t panic-sell and pull your money out early, the market will bounce back and climb higher again.

While it’s nice to have the problem of too much money, that only matters if you’re going to restrain yourself from excessive spending and committing to saving for your future.

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