Every hard-earned dollar you make has its place. But how much of it should sit in your bank? It’s a frequently pondered question, and for those who value analytical insights and genuine advice, it’s essential.
If you’re aiming to have a clear strategy for every cent, here’s a practical guide to navigate this.
Why a $2-3K Cushion?
For most, the common advice we give is to maintain a bare-bones minimum cushion of $2-3K in your checking account. If you’ve stockpiled more, it’s a nudge for you. This surplus cash should be steered towards a short or long-term aspiration. Or, maybe it’s time to sprinkle a bit of luxury into your life – guilt-free, of course!
Redefining Financial Standards
Concrete numbers in financial advice? A potential pitfall. If someone hands you a fixed “millennial savings number,” tread cautiously. At Progress Wealth Management, we understand that financial directions aren’t “one-size-fits-all.”
Automate for Precision
Technology offers precision. We’re staunch advocates for automating savings. Let’s get this straight: if you must constantly think about stashing away money, the chances are you might overlook it. Automation streamlines your finances and minimizes human error.
The Emergency Buffer
This is absolutely essential. Contrary to popular opinion, we’re not aboard the “$10K or 6-12 Month” emergency fund train. Our perspective? Maintain a reserve equivalent to three months of your fixed expenses. Constant additions to this fund aren’t necessary unless there’s a shift in your expenditures.
6 months is appropriate if you’re a single-income household in a profession that has a high risk of layoff.
12 months is appropriate if your income is highly variable such as a full commission salesman or an entrepreneur.
Setting Your Short & Mid-Term Goals
Your short-term objectives (1-3 years) could be that dream vacation to the Mediterranean or maybe securing an engagement ring. Funds for these should be held in a liquid and risk-free investment such as a high-yield bank account or a money market mutual fund. When it comes to medium-term objectives (more than 3 years but pre-retirement), the line gets blurry. Goals evolve, and so should your financial strategy.
Steering Clear of Misconceptions
Certificates of Deposit (CDs) and Money Market accounts might sound like the go-to for your savings needs. However, it’s time for a reality check: they’re not as great as they seem. Exorbitant minimums and other conditions can make them less appealing. Your money, in most instances, performs better when invested wisely in the stock market for long-term goals and for emergency funds, a high-yield bank account makes more sense because CDs aren’t actually liquid; there’s a penalty if you get out early.
Retirement: The Long Game
The approach to retirement planning is a different ball game, demanding a distinct strategy. CDs or Money Market accounts won’t cut it. Let the magic of compounding work in your favor by investing wisely.
Cash: Your Day-to-Day
Your monthly expenses dictate the cash in your checking account. Automation ensures you’re saving right, and whatever remains manages your daily financial needs. If there’s a mismatch, perhaps it’s time for introspection. Are you living beyond your means?
The golden advice? 3 months of your minimum expenses is probably enough for most people; 6 months is better. 12 months makes sense if you’re in a full-commission job or if you’re an entrepreneur. But always remember, personal finance is deeply “personal.” The journey to financial clarity isn’t about strict numbers but tailored strategies.
Progress Wealth Management: A genuine, data-driven ally in your journey towards achieving financial milestones, be it a luxurious vacation or a comfortable retirement. We’re here to ensure your finances align with your ambitions.