Saving The Right Way: How Much Cash to Keep in the Bank?

You must have thought about it at some point in time – how much cash should you keep in your bank account? The answer to this question may vary from person to person. It all depends on how much you save and spend every month. Regardless, it is important to have some cash saved in your bank account, especially during an emergency. But figuring out how much cash to keep in the bank can be a bit confusing. So, in this article, we will be understanding the 50/30/20 rule to save money and other reasons you can consider for putting money in the bank.

Follow the 50/30/20 Rule

The 50/30/20 rule is quite a straightforward budgeting principle that you can consider for ultimate savings. It is a popular budgeting strategy and suggests you to allocate your income into three categories:

• 50% for Needs: Half of your income should cover essential non-negotiable expenses like rent, utilities, groceries, and transportation.
• 30% for Wants: You should dedicate 30% to non-essential spending, the things that bring joy but aren’t too important in life. This can include dining out, entertainment, or wishful purchases.
• 20% for Savings: The remaining 20% should be considered for savings. This is where you build your financial cushion and plan for the future.

By following this rule, you certainly create a balanced approach to manage your money, which would ensure that you meet your immediate needs, enjoy some luxuries, and save for a secure tomorrow.

Save for Emergencies

Life is unpredictable and you never know when emergencies can strike. Whether it is a medical expense, car repair, or sudden job loss, having an emergency fund is of utmost importance. Financial experts recommend saving three to six months’ worth of living expenses in your bank. So, you must calculate your essential monthly expenses – rent, utilities, groceries, insurance, and any other must-pay bills. Now multiply this by the number of months you want to save for, which is usually six months. This emergency fund would certainly provide peace of mind during tough times without disturbing your long-term financial goals.

Save for Monthly Bills

Apart from emergencies, it is also essential to budget for your regular monthly bills. These are predictable expenses that you can plan for. Hence, create a list of all your bills – rent , utilities, insurance, subscriptions, and loan payments. Set aside enough money each month to cover these bills. You can also consider using a separate bank account or a designated portion of your main account to make sure you don’t accidentally spend money kept for these bills. This would help you stay organised, avoid late fees, and ensure you meet your financial responsibilities on time.

How Much Should You Have On Your Hand?

There is no doubt that having a significant portion of your savings in a bank is wise, but it is also essential to keep a certain amount always available for day-to-day expenses and unexpected opportunities. Some of these expenses that you must consider are listed below:

• Always have some money to cover your daily expenses like groceries, transportation, and occasional outings. This amount varies for each person, but you can consider keeping a week’s worth of living expenses always available.
• Life is full of unexpected opportunities and hence, you never know when the item you have been eyeing for very long is on sale. So, do allocate a small portion of your savings for such opportunities.
• Not every emergency requires you to spend your dedicated emergency fund and hence, for small emergencies, you must have a modest amount on hand that can cover minor unexpected expenses.
• You must also have some money on your hand for birthdays, holidays, and celebrations that come around regularly.

The key to saving the right way is finding a balance between immediate needs, future planning, and unexpected situations. Get going now, follow these considerations and have a great living.