Everyone has an opinion on how much cash you should keep in your bank account. The truth is that it depends on your financial situation. What you need to keep in the bank is money to pay your regular bills, optional expenses, and the portion of your savings that make up emergency fund.
You may need to revise your estimates of how much you should have on hand. Even if you have an emergency fund, learn from this situation to rethink what feels comfortable and necessary in the future.
It all starts with your budget. If you don’t budget correctly, you run the risk of not keeping anything in your bank account. Don’t have a budget? Now is the time to establish one. – or refine the way you’ve planned so far. Here are some ideas on how to do that.
the main points
- The amount of cash you should keep in the bank depends on your financial situation and your savings goals. It all starts with budgeting.
- The 50/30/20 rule is a popular approach to budgeting.
- It provides a plan for setting aside money for your regular bills, optional expenses, and setting aside some of your savings for an emergency fund.
The 50/30/20 rule
First, let’s take a look at the very popular ones 50/30/20 budget base. Instead of trying to follow a complex budget, with an excessive number of lines, you can think of your money as divided into three categories.
Costs that do not change (fixed): 50%
It would be nice if you didn’t have monthly bills, but the electric bill is coming, as are the water, internet, car, and mortgage (or rent) bills. Assuming you’ve assessed the fit of these costs within your budget and decided they’re necessary, there’s not much you can do but pay for them.
Fixed costs should take up about 50% of your monthly budget.
Optional cash: 30%
This is the room where everything is allowed (within reason). It is money that you can use to meet your needs rather than your needs.
It’s worth noting that most planners include food in this line item, because there are plenty of options in how you manage this expense: You can eat out or eat at home, buy generic or brand name, or you can buy a cheap box. of soup or a combination of organic ingredients and make your own soup.
This basket also includes a movie, the purchase of a new tablet, or a contribution to charity. It’s your decision. The general rule of thumb is 30% of your income, but many money experts would argue that 30% is too high.
Financial goals: 20%
If you’re not saving hard for the future, you’re setting yourself up for tough times. This is where the last 20% of your monthly income should go. This financing is essential for your future.
If you don’t have an emergency fund, most of that 20% should be spent on building one.
About this emergency fund
Besides your monthly living expenses and discretionary funds, the largest part of the cash reserves in your bank account should be your emergency fund. The money for this fund should come from the portion of your budget that’s set aside for savings, and that’s 20% of the 50/30/20.
How much do you want ? Everyone has a different opinion. Most financial experts end up suggesting that you need a cash reserve equivalent to six months of expenses: If you need $5,000 to survive each month, save $30,000.
Others advise an eight-month emergency fund, because that’s about the time it takes the average person to find a job. Other experts recommend 3 months, while some say none if you have very little debt, already have a lot of money saved in liquid investments and have health insurance.. quality.
Should this fund already be in the bank? Some of those same experts will advise you to keep your five-figure emergency fund in an investment account with relatively safe provisions to earn more than the paltry interest you’d get on a savings account. On the other hand, the past few months may have changed your view of what is “safe.”
The main thing is that the money It can be accessed instantly If you need to.
If you don’t have an emergency fund, you should probably create one before setting aside your financial goals and savings for retirement or other goals. Try building a fund for three months of spending, then divide your savings between a savings account and investments so you have six to eight months of savings.
Then, your savings should be earmarked for retirement and other goals — investing in something that pays more than a bank account.
How much money should I keep in my savings account?
How much you should keep in a savings account depends on your budget. Savings accounts are designed to take deposits, rather than frequent withdrawals. In fact, you are generally not allowed to make more than six withdrawals per month from a savings account.
They allow you to invest money independently of your daily banking needs, such as building an emergency fund or achieving an important savings goal, such as a dream vacation.
How much money should I keep in my checking account?
Checking accounts are designed to handle many transactions, such as paying bills or withdrawing money you need for everyday expenses. The amount in your checking account should be enough to pay your monthly bills, withdraw money for other expenses, and avoid overdraft fees.
When keeping money in the bank, whether it be a large or small amount, it is important to make sure you have the right account for your needs.
For a checking account, for example, consider things like a minimum balance requirement, monthly fees, and the ability to earn interest. These same items are important for savings accounts, money market accounts, and CD accounts. Checking the annual percentage return for deposit accounts is especially important when banks are lowering interest rates.
When deposit account rates are generally down, you shouldn’t give up on saving. On the contrary, you should compare carefully Traditional banks and online banks Find the best interest rates on checking, savings, money market and CD accounts.