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How Much Money Should I Put In the Bank?

Thursday, January 3, 2013
3-6 months of you salary. Yes, just this much. This is what we call a cash buffer - an amount that should cover your 1.) monthly cash flow needs like paying your utility bills, and any 2.) emergency needs like medicine in case you get sick or if a family member unexpectedly borrows money from you.
You should always have this much liquid amount which is why it is best to put it in the bank.

Anything in excess of this amount would just be a waste to still put in the bank because there are lots of  better performing instruments compared to bank products like savings account and time deposits. Samples of these better performing instruments are stocks, bonds or mutual funds.

To know more about stocks, bonds, and mutual funds, CLICK HERE.

If you are saving up for retirement, putting your money in the bank is not a good idea as the returns from the bank is most usually lower than inflation. That means the money that you have worked hard to save loses its value every year. So if you have retirement savings that you are not planning to use in the short term, might as well invest it.

In what investment to put them in would depend on your risk appetite. There are instruments that can provide guaranteed but minimal return while there are others that can provide big returns but with no guarantee. There is always a profitability and risk tradeoff.

To know more about profitability and risk tradeoff, CLICK HERE.

Don't get too comfortable with putting all your money in the bank. Try to find out more about other investments/instruments. The main selling point if putting your money in the bank is that it provides security and liquidity. If you are looking for "returns", the bank will provide very little of that for you.
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