Everybody has an opinion on how much cash you should keep in your bank account. The truth is, it depends on your financial situation. Everyone should have enough money in the bank each month to cover their regular expenses as well as discretionary spending, plus a little extra for an emergency fund.
You should have money in a bank account, a wallet with $100 to $300 in cash, and a home safe with roughly $1,000 in it for unforeseen expenses.
Everything starts with your budget. If you dont budget correctly, you dont know how much you need to keep in your bank account. If you dont have one, now’s the time to develop one.
Deciding where to stash your hard-earned cash can be a head-scratcher. Should you keep it tucked away in a mattress, or safely deposited in a bank account? Both options come with their own set of pros and cons, so the “best” choice depends on your individual needs and financial goals.
The Case for Cash
Keeping some cash on hand can be a wise move for several reasons:
- Emergencies: Life throws curveballs. Having some cash readily available can be a lifesaver when unexpected expenses arise, like a car repair or a medical emergency.
- Convenience: Cash is king when it comes to making small, everyday purchases. No need to fumble with cards or wait for transactions to process.
- Avoiding debt: Using cash can help you stick to a budget and avoid the temptation of overspending with credit cards.
- Privacy: Cash transactions offer a level of anonymity that digital payments lack.
The Case for Banks
While cash has its advantages banks offer a secure and convenient way to manage your finances:
- Security: Banks provide a safe haven for your money, protecting it from theft or loss.
- Interest earnings: Most bank accounts offer some interest, allowing your money to grow over time.
- Accessibility: With online banking and ATMs, accessing your funds is easy and convenient.
- Bill payments: Many banks offer bill pay services, making it easier to manage your monthly expenses.
Finding the Right Balance
The ideal approach often involves a mix of both cash and bank accounts. Here’s a breakdown to help you decide how much to keep where:
- Checking account: Aim for one to two months’ worth of living expenses, plus a 30% buffer to cover unexpected costs.
- Savings account: Stash three to six months’ worth of living expenses in your emergency fund.
- Cash: Keep a small amount of cash on hand for daily expenses and emergencies.
Additional Considerations
- Inflation: Inflation erodes the value of cash over time. Consider investing a portion of your savings to outpace inflation.
- FDIC insurance: Bank accounts are insured by the FDIC up to $250,000 per depositor, per bank.
- Accessibility: Ensure you have easy access to your cash in case of an emergency.
The Bottom Line
There’s no one-size-fits-all answer to the cash vs. bank debate. The best approach depends on your individual circumstances and financial goals. You can make an informed choice that supports your financial well-being by carefully analyzing your needs and the advantages and disadvantages of each option.
Bonus Tip:
- Track your spending: Monitor your expenses to gain insights into your spending habits and identify areas where you can save.
- Set financial goals: Define your short- and long-term financial goals to guide your savings and investment decisions.
- Seek professional advice: Consult a financial advisor for personalized guidance on managing your money effectively.
Remember, financial security is a journey, not a destination. You can provide yourself and your future with a stable financial future by acting and making wise decisions.
Costs that Don’t Change: 50%
Although it would be nice to not have any monthly expenses, the electricity bill is due on the same day as the bills for your car, water, internet, mortgage, and rent. There isn’t much you can do but pay these expenses if you have determined they are necessary after considering how they fit into your budget.
Fixed costs should eat up around 50% of your monthly budget.
Granted, not all of these costs are fixed. Electricity costs, for example, change with the seasons. However, over time, you ought to gain a decent understanding of roughly how much you’ll need to pay for the expense each month.
Another Budget Strategy: Dave Ramsey’s Method
Financial guru Dave Ramsey has a slightly different take on how you should carve up your cash. His recommended allocations look something like this (expressed as a percentage of your take-home pay):
- Charitable Giving: 10%
- Savings: 10%
- Food: 10%–15%
- Utilities: 5%–10%
- Housing: 25%
- Transportation: 10%
- Medical/Health: 5%–10%
- Insurance: 10%–25%
- Recreation: 5%–10%
- Personal Spending: 5%–10%
- Miscellaneous: 5%–10%
How Much Cash Should I Keep In The Bank?
FAQ
Is it better to keep money in a bank or in cash?
Is it worth keeping money in cash?
How much cash is too much in savings?
Can banks seize your money if economy fails?
Is cash in the bank a good thing?
Cash in the bank is a good thing — up to a certain point. Banks insure only up to $250,000 in an account, so if you have more than that, your money is at risk. If you have too much in a low-interest bank account, your money isn’t working for you. You can get much higher returns if you invest instead.
Why should you keep cash in your checking and savings accounts?
Keeping the right amount of cash in your checking and savings accounts ensures that you’re able to cover your daily needs and emergencies, avoid unnecessary bank fees and grow your long-term savings. Again, it’s about finding what’s right for you, not having the average checking account balance.
Should you keep money in a savings account?
Hero Images/Getty Images Savings accounts may not pay much, but they’re still helpful for your financial success. See why you should keep money in a savings account.
Should you keep cash in your bank account?
When keeping cash in the bank, whether it’s a larger amount or a smaller one, it’s important to make sure you’ve got the right account for your needs. With a checking account, for instance, consider things like minimum balance requirements, monthly fees and whether you can earn interest.