It doesn’t matter if you have the best job around. It doesn’t matter if you’re making more money than you ever thought you would.
If you aren’t financially savvy, then you could easily lose it all.
Stories of superstar NBA players going broke shortly after their career ends and celebrities filing bankruptcy should serve as a warning. None of us are impervious to the sobering results of mismanaged finances.
If you want to hang on to your hard-earned money, you need to be financially savvy.
Part of developing your financial acumen is knowing how much money to put in your savings and checking account. Too often, people just route all of their income into their checking account and then do nothing with it from there. In order to maximize the potential of your money and increase your retirement fund, you need to follow the steps outlined in this article to figure out how to portion your money across your accounts.
How Much Money Should Be in Your Savings and Checking Account?
There’s no one-size-fits-all approach to figuring out how much money should be in your savings and checking account. But as a general rule of thumb, there shouldn’t be any more money in your checking account than that which you need to pay your monthly expenses and avoid overdraft fees.
Remember that each bank can charge overdraft fees if your checking account is overdrawn. If you keep too little money in your checking account, this could easily happen. Be vigilant of the expenses that will be drawn from your checking account. Faithfully keep enough money in that account to cover those expenses, with a cushion for margin of error.
In addition, remember that your bank may charge your account fees if your checking account falls below a certain balance. Check with your institution what that minimum balance is so that you don’t go below it.
Direct the rest of your money into your savings account.
Don’t Sacrifice Investment Potential
The benefits of a savings account are positive compared to a checking account (you can earn a small amount of interest on money in a savings account), but they pale in significance when compared to the benefits of investing your money.
By consulting with a SmartVestor, you can figure out an investment strategy that works for your desired risk profile. As a general rule, however, it doesn’t take very much to earn capital gains on your savings that far exceed the small interest rate that your bank may pay. Remember this so that you don’t leave all your money in your savings account to rot.
However, you do need to leave money in your savings account so that you’re able to maintain liquidity. Exactly how much you leave will depend on how risky you want to be. Most experts advise that you have at least enough to live on for six months at your current lifestyle.
Be Financially Savvy
There you have it — now that you know how much money to leave in your savings and checking account and what to do with your extra cash, you’ve successfully started your journey to becoming financially savvy.
For more financial advice, be sure to check out the rest of the articles on the website!