- May 31, 2024
- by Prakash Lohana
- Articles
- 406 Views
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Determining the right amount of money to keep in a savings account is a crucial financial decision, and it varies from person to person based on individual circumstances. Here are some key factors to consider:
1. Income and Expenses: Your income and monthly expenses play a pivotal role in determining your savings account balance. It’s essential to maintain a balance that covers your regular expenses and provides a financial cushion for unexpected emergencies.
2. Emergency Fund: One of the primary reasons for maintaining a savings account is to establish an emergency fund. Financial experts often recommend setting aside three to six months’ total outflows that includes your insurance premiums and EMIs in an easily accessible account. This safety net can prove invaluable in cases of sudden medical emergencies, job loss, or other significant unforeseen events.
3. Income Growth: As your income increases, consider raising the amount in your emergency fund. This ensures that your financial safety net keeps pace with your changing financial situation.
4. Interest Rates: While savings accounts offer security and liquidity, they typically have low-interest rates, often around 3.5% to 4%. It’s crucial to be aware that keeping substantial sums in a savings account may result in negative real returns due to inflation. Therefore, it’s advisable to keep only the necessary minimum in a savings account and explore alternative investment options like liquid funds, short-term fixed deposits for the rest of your funds.
In conclusion, there isn’t a one-size-fits-all answer to the question of how much money to keep in a savings account. It depends on your specific financial situation and goals. Ensure your savings account provides easy access to funds for emergencies while considering higher-yield investment options for long-term financial growth.