How Much Money to Keep in Your Checking vs Saving vs Investment Accounts
Show me the (organized) money!
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Organizing Your Accounts
It is officially Spring, which means it is time to Spring clean! Get those financial ducks in a row, you know? Right now, open a new Excel document and list out all your current financial accounts; whether they are checking, savings, 401Ks, investment accounts, whatever.
Many people are unsure exactly how much money they have in each of their accounts in regard to their total net worth. This exercise will help you see where all your money is spread out to and how it equals out. Plus, if you are saving your money correctly, this exercise will make you feel pretty damn good about yourself.
Calculate your net worth, and then calculate the how much each one of your accounts is worth in relation to that. Think of it like a pie, how big of a slice is your savings account? Trust me, it will come in handy when I go over what financial experts recommend you have in each account.
*Quick note: This is not financial advice. Please speak with a financial representative for any and all needs in regard to finances. This is for educational purposes only.
Checking Account
The wonderful checking account. The checking account is where a lot of people tend to have their money deposited and stored for long periods of time.
Experts suggest, however, to hold about:
1-2 months’ worth of living expenses
A buffer of about 25%-35%.
The goal of a checking account should always be to cover your daily living expenses. That is why you want to have at least a couple of months on hand that you can access quickly if necessary. You should use this money to pay off the credit card/cards you use in your daily life.
Why a buffer?
A buffer is smart because you do not want to have to worry about overdraft fees or needing more cash in a pinch. Life changes fast, so you want to make sure you have money when you need it.
Savings Account
Savings accounts can be great for storing emergency money, but it should not be the only place you let your money sit.
Financial experts often suggest to hold about:
2-7 months’ worth of living expenses
Buffer if needed based on financial situation
Having a solid amount of money in your savings leads to peace of mind in case of an emergency, big purchases, long term-savings, and other things that can come down the line.
The downside is, you are slowly losing the value of that money as inflation eats away at your account with the small interest rates you usually get from standard savings accounts.
There are two options where the rest of your money should go. Investing accounts and higher yielding savings accounts.
A higher yielding savings account just means they will give you a percentage of free money based on the amount you save in that account. If you do not know what this is or if you have one, stop reading this article and go figure it out! Don’t worry, I’ll wait.
Investing Accounts
Because your money is sitting in your checking and savings accounts serving its purpose of covering life expenses, the rest of your money should be going to work for you! This is much better than losing value just sitting around.
Investing is the way to maximize your money’s potential. Here are a few different types of accounts you could spread your money into.
401K/Roth IRA Accounts
These are retirement accounts that your company or you as an individual can set up. These accounts are set up in a way that invests your money till you retire and then you get to take it out tax free!
I will do a future article breaking down the accounts another time. For now, go ask your parents or your current company about the details and getting one set up.
Stock Market Brokerage Accounts
There are so many platforms out there that you can open up an account and start investing in companies and the economy as a whole. What makes this generation so lucky is we have platforms that help all types of investors started investing with just the click of a button. So, take advantage! Here are a few:
Acorns
Stash
Webull
TD Ameritrade
Fidelity
Cryptocurrency Brokerage Accounts
Becoming increasingly popular is investing in cryptocurrency. You can do this on plenty of great platforms to further diversify your portfolio and where your money can work for you. Below are a couple options for you to check out:
Coinbase
Gemini
Crypto.com
eToro
To wrap up the investing portion of this article is to remind everyone that there is not an expert recommended amount of your money you should have invested in one way or another. The best equation for answering that question is investing the amount that is best for your financial goals.
There is risk in investing, yes. However, there is also risk in doing nothing with your money and letting it become de-valued by inflation. This is just a callout to know everything has risk, and you should plan accordingly.
No Better Day Than Today
There is a great quote out there about investing that goes, “Yesterday was the best day to invest, the next best day is today.”
I want to switch it up to make it connect with this newsletter topic, “Yesterday was the best day to review your financials, the next best day is today.”
So, start an Excel document right now, and give your finances a deep dive. Your future self will thank you later!
Cheers!
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