Holding cash in your bank account has some practical purposes, but it can also make your money lose value. “How much cash should I keep in my bank account” is one of the top questions people have when it comes to personal finance and in this episode, Jason Gabrieli and Tyler Reedman lay out simple answers to this big question.
It’s important to understand how to determine the “right” amount of cash for your personal situation and when it might make sense to look to invest cash in pursuit of your mid and longer term goals.
Tune into this episode to learn:
- How much money your emergency fund should have (and what a psychological safety net is).
- Why leaving excess cash in your bank account can make your money lose value.
- Whether you should invest all your excess cash as a lump sum.
[00:30] Episode overview: keeping cash in your bank account.
[02:22] The main reason you should keep money in cash in your bank account.
[03:34] How much money should you keep in cash? (with statistics)
[08:25] What is your psychological safety net number? OR How much cash would you need to sleep well at night?
[09:39] How leaving cash in the bank can make you LOSE money.
[10:08] The opportunity cost of leaving money in the bank.
[11:04] Investing lump sums of your cash into the stock market.
[12:16] What does it mean to invest in recurring contributions (and how it can make you less nervous about investing)?
[13:26] What should you invest your money in?
- Some people have had excess cash lately because of stimulus checks and staying home during the pandemic and not spending as much
- One of the key reasons to keep money in cash is to cover expenses in case of an emergency. An emergency fund is subjective. Plan 3-6 months of expenses in your emergency fund. You need to have a cash comfort level.
- In years when inflation is high, leaving cash in your bank account (like in a savings account for example) can make you lose money as it is losing value to inflation.
- The stock market is regularly at all time highs. Don’t fall into the trap of thinking you don’t want to invest your money during all time highs. Always know that the best time to invest your cash in diversified funds is yesterday.
- If the fear of investing lump sums into the stock market is stopping you from investing, then invest by making recurring contributions. For example, you can invest a set amount every two weeks or every month.
Connect with Jason Gabrieli: LinkedIn
Connect with Tyler Reedman: LinkedIn
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[02:42] “The reason you want to have cash or liquidity available is because things happen. Your life doesn’t always go according to plan, somebody loses a job, or somebody gets sick, and you need cash to pay your bulls over a short period of time” - Jason
[05:54] “Back in 2013, only 50% of those surveyed believe that they could pay a $400 emergency expense” -Tyler
[06:33] “Knowing how much you should have in cash or how much you should have in that emergency fund is a little bit fluid and is a little bit subjective to your personal situation, what your bills are, what your income situation is.” - Jason
[08:02] “That’s the beginning part of how much cash I should have: the short answer is enough to cover your emergencies and to cover those things that may not be emergencies but you know are coming like a car break down...in general, you want to have this cash comfort level.”- Jason
[08:52] “Once you establish that number is, what is the “I would feel comfortable sleeping at night if I had this much cash” above that is really where you should consider doing something else with your money that is going to potentially be able to get you a better return than just leaving money in the bank” - Jason