How Much Should Be Kept In Your Bank Account Vs. Moved Elsewhere?

Hello and welcome to Forbes Advisor’s Weekly Brief, where we dive into the realities of consumer finance and empower you with knowledge to help make your financial journey easier.

Are you missing out on potential growth by keeping too much cash in your bank account instead of investing it? I definitely was.

While many find investing intimidating (myself included at one point), getting started can be easier than you think. The first thing I did to decide how much to invest each month was figure out how much I should reasonably keep across my accounts. Once I crunched the numbers, I was surprised to learn I was holding more than I needed, which meant I was missing out on opportunities to grow my wealth.

In this week’s Brief, I’ll share tips on how to decide the right amount of money to keep in your bank account versus how much you should invest in higher-return investments. Hopefully, doing so will help kick-start your investment journey, as it did for me.

This slideshow is an excerpt of an article on Forbes Advisor. You can read the full article here.

How Much Should Be Kept In Your Bank Account Vs. Moved Elsewhere?

Want to start investing but don’t know where to start? A common rule of thumb is to invest 15% to 20% of your pretax income, but this may not be practical for everyone. The tips below can help you figure out how much you should ideally keep in your checking and savings accounts, so you can see how much cash you have available to invest.

List essential expenses: The first step toward building a solid financial foundation is to create a list of your essential expenses to create a budget. Essential expenses include things like rent, utilities, food and child care, as well as debt payments.

Keep enough in your checking account: It’s recommended to keep around one to two months’ worth of living expenses in your checking account, plus a 30% buffer for things like overdrafts and declined payments.

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How Much Should Be Kept In Your Bank Account Vs. Moved Elsewhere?

Build an emergency fund: Before you begin investing, it’s crucial to have a large enough emergency fund to act as a safety net for unplanned expenses. The general rule of thumb is to have three to six months of essential living expenses saved, ideally in a high-yield savings account with a competitive rate. Building an emergency fund should be your first savings priority after covering all essential expenses.

Other savings goals: You will also need to keep extra cash in a high-yield savings account for short-term savings goals, like buying a new vehicle or going on a vacation. Organizing your savings goals into separate accounts or savings “buckets” can help you stay on track to meet them.

Identify the amount you have left to invest: Once you’ve built a sufficient emergency fund, set aside funds for other short-term savings goals and have a solid buffer in your checking account, you can transfer your leftover cash into higher-return investment accounts, like IRAs, index funds or ETFs.

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How Much Should Be Kept In Your Bank Account Vs. Moved Elsewhere?

Automate investments: Automating investment payments can help you avoid stress and keep you on track toward your long-term savings goals. You won’t have to worry about remembering to manually log in to your accounts and make contributions every month.

Ultimately, the amount you choose to invest will also depend on your age and retirement timeline. Young investors typically have a higher risk tolerance and can allocate more to higher‑growth investments, while older individuals nearing retirement may focus more on fixed-income investments and preserving capital.

For more information about how to make informed financial decisions, visit Forbes Advisor.

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How much should be kept in your bank account vs. moved elsewhere?

Hello and welcome to Forbes Advisor’s Weekly Brief, where we dive into the realities of consumer finance and empower you with knowledge to help make your financial journey easier. Are you missing out on potential growth by keeping too much cash in your bank account instead of investing it? I definitely was. While many find […]