TomorrowMakers

Ever wondered how much cash to keep in your bank account? Save a major chunk of your salary, put aside just the bare minimum, or settle for a compromise? Here’s a guide to the perplexed.

Tips to help you decide how much cash to keep in the your bank account

Women have traditionally been the ‘house managers’ of cash since times immemorial. However, today’s independent women have many other responsibilities as well. It has thus become more important to manage one’s finances in such a way that both the present and the future are accounted for.

This is when the question arises: how much cash should a woman keep in the bank? How much to save, how to spend, and – most importantly – where to invest? 

Here are some suggestions that will address these pressing questions: 

1. Budget

Your monthly budget is the first and the most impactful step that decides how much money to keep in the bank. There should be enough cash in your account to take care of bill payments and other essential fixed costs. This might constitute about 50% of the monthly income. 

Next are the discretionary costs that are not fixed but controllable in nature. This list refers to how you spend your money on restaurant food, movies, and other costs that are 'wants' rather than 'needs'. One should have enough money in the bank to at least cover fixed costs and discretionary costs.

The third part of the budget is savings. This is responsible for building an emergency fund.

2. Emergency fund

An emergency fund is that part of the monthly income that is put aside to ensure financial stability in times of difficulty. It should be at least 20% of your monthly income.

One of the most basic qualities of an emergency fund should be liquidity. It should be easily available and accessible in times of need, without any loss in value. Your emergency fund should, therefore, be invested in liquid assets.

How much money should one have in an emergency fund? This largely depends on a person’s financial needs and requirements. It also depends on a person’s earning capacity. 

However, it is recommended that you have 3-6 months’ income as an emergency fund. In case of unemployment or other unforeseen circumstances, this is a good enough buffer time to get back on your feet. 

3. Liquid assets

Liquid assets are assets that can be easily converted into cash without any loss in value. This quick transformation into cash is what makes an asset ‘liquid’. 

Preferred liquid assets include short-term promissory notes, treasury bills, government bonds, etc. Money market funds too make for a great liquid asset in an investment portfolio. Bank accounts and savings accounts are also very useful as they are liquid and highly secure.

Last words

Different people may have different opinions on how much cash to keep in the bank, but a smart hack is to set aside enough for fixed and discretionary expenses. As far as emergency funds go, one part of it should be kept in the bank as this is highly liquid and can be accessed in a short-term emergency. Another part should be invested smartly so that it can be accessed during in a long-term emergencies requiring larger funds.

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