It’s possible you hear a lot about how much money you should have saved. For some, this could feel overwhelming or even like an unknown concept. How much is enough? Let’s demystify the idea of saving money and an emergency fund to help you feel comfortable and secure with setting and achieving your financial goals.
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How much money should I have in my checking account?
The amount you should have saved is different for everyone. It depends on your budget, income, outgoing funds, and goals. It can be helpful to think about all your income and expenses, how much you budget for monthly, and then set a goal outside of this amount to set aside. Ideally, your checking account should be used for your bills and discretionary spending. This helps prevent accidentally spending your saved funds.
Should I prioritize my emergency fund first?
An emergency fund is a great idea, especially given what we’ve seen with the job market and economy over the past two years as a result of the pandemic. It is recommended that your emergency fund is enough for 6- 8 months of your living costs.
This means considering rent or mortgage payment, utilities, even the cost of food into your emergency fund. It is important to focus on having this amount set aside before you start tackling any large debts or even before building a savings account. That way, you will have your emergency fund set up, in case of an emergency, and can focus on your long term or short term savings goals.
Types of bank accounts
There are different types of bank accounts that can fit your needs for savings, expenses, and income.
Your checking account is where you can hold your cash and are typically used most frequently. Be prepared to know that money will usually not sit in this account for long. This would be your primary account for debit cards and checks, which you use when you need to withdraw cash, bill pays, or make purchases.
Keep in mind there can be some fees associated with checking accounts. Sometimes these fees are waived if you maintain a certain balance or have a certain amount in your monthly deposits.
A savings account is ideal for more short term savings goals. You can use your savings account if you are planning a trip, looking to purchase a home or a new vehicle and even if you’re saving for a pair of shoes.
The idea is to use your savings account to keep funds separate from your checking and then transfer into your checking when you have saved enough to make your purchase. There are rules as to how many monthly transfers you can make from your savings account to your checking account so check with your financial institution.
Money market account
A money market account is similar to a standard savings account with some checking account features.There are some limits, but some money market accounts allow you to write checks and withdraw directly from them. However, this can only be done up to 6 times a month.
Money market accounts tend to earn more in interest than a standard savings account. They can also have a higher minimum balance requirement. This could be a good account for more long term savings goals and it is likely not the best idea to depend on writing checks from this account.
Your emergency fund is your reserve for an unexpected emergency. Lose your job? Unexpected car repair? Suddenly need a new laptop in the middle of the semester? This is a great time to use your emergency fund.
You want these funds to be easily accessible or liquid. Consider if an emergency does arise and you use an account that limits the number of withdrawals, that might not be the best option. It is also beneficial to keep this account separate from your standard checking account.
3 easy ways to help your money grow
Now that you have figured out which account or accounts work best for you, you have to get the money in the bank. You might be wondering how to grow your money. Here are a few easy ways to get started.
High yield accounts
High yield accounts can be checking or savings accounts that have higher interest rates. Both can be used for your emergency fund and give you the chance to earn higher interest on the funds while you are waiting for the “rainy day” that you’ll need to use them to come along. The average standard bank savings account interest rate is .06% whereas in a high yield interest savings account you might find a rate of about .40%/ This higher rate can help your money grow and make saving money a little easier.
Setting up an automatic deposit is a quick and painless way to ensure you are saving money consistently. You can set the frequency of deposits, the easiest frequency is every time you get paid, and the amount to transfer automatically into your savings account.
The money’s gone before you get a chance to miss it! This method of saving helps you save consistently and it is an easy way to watch your money grow without doing too much extra work. You can save even more money by increasing the savings amount by small increments every few months.
Investment accounts are a great way to save money and watch it grow. You can even consider keeping your emergency fund in an investment account because it should only be touched in case of an emergency.
That way if you don’t use the fund for a few years, at least it’s been expanding. You want to make sure the investments are relatively safe, that way you do not have to be too concerned about losing the money you worked so hard to put away.
Also, you should make sure you can deposit and withdraw your money whenever you need it. Remember, an emergency fund needs to be easily accessible.
How much is enough?
By now you should have a good idea that how much money you should have in the bank really depends on you. It depends on your individual needs but the main things to keep in mind are having a checking account, emergency fund, and a separate savings account for savings goals. The first step is to start saving, you will figure out the rest.
Is it bad to have a lot of money in the bank?
It is most important to ensure that your money is properly allocated. If you are looking to grow your money, it is important to look at accounts that will provide you the amount of growth you’re seeking. Bank accounts tend to have lower interest rates than other growth options like investment accounts.
Why should you have an emergency fund?
An emergency fund is important to cover unexpected large expenses and cover your financial responsibilities should you lose your job suddenly.
Is it a good idea to keep money in the bank?
Money in the bank is insured and protected. If this is important to you, yes! Keeping your money in the bank means it is insured, safe, and typically easy to access.