Keeping money in bank accounts allows you to safeguard your cash while maintaining easy access to it.
However, you may want to avoid keeping too much cash in low-interest accounts. The interest on regular bank accounts typically doesn’t offer enough protection against inflation, which chips away at your purchasing power.
Here are a few steps for a balanced approach.
1. Define the purpose
Many people find it helpful to maintain separate bank accounts or digital wallets for different purposes. This makes it easier to track spending, monitor progress toward goals, and identify areas for improvement.
Review your accounts and assign each of them a specific purpose, such as:
- Daily transactions
- Monthly bills
- Unexpected expenses
- Short-term goals (e.g. education and travel)
With specific assignments, you can estimate how much is enough to keep in each account.
If you need a new account for personal spending, saving, or investing goals, you can open a Metrobank eSavings Account. Application is fully online and requires just 1 valid ID.
Learn more about its features in this article.
2. Set aside money for essential spending
You may use 1 or 2 accounts for predictable expenses. A savings account can be dedicated to daily transactions, while a checking account can handles recurring payments like monthly bills and loans.
Your monthly budget should give you an idea of how much money your spending accounts must contain.
At any given time, each account should have enough to cover expected expenses, the maintaining balance (if any), plus a small buffer in case a bill runs higher than usual.
Since regular bank accounts offer little to no interest, extra money beyond your buffer may be better kept elsewhere. Consider growing your emergency fund or investing for better potential growth instead.
3. Prepare for unexpected expenses
It’s ideal to have an emergency fund containing 3 to 6 months’ worth of living expenses. This is your safety net for unforeseen circumstances like job loss, medical emergencies, or household repairs.
Stashing this money separately from your spending account – while keeping it accessible – makes it less tempting to use for non-emergencies.
You can adjust the amount of your emergency fund if your situation changes. It might need a boost after an emergency or during major life transitions, like moving or starting a family.
If your essential expenses decrease, you can reduce the overall amount.
4. Keep cash for investing
A bank account often serves as a settlement account for investing. This is the account for topping up or withdrawing from your investments.
Money in this account should cover automatic investing arrangements or scheduled top ups. This account may also hold dry powder, or cash that you can readily use when a good opportunity comes.
5. Consider starting sinking funds
A sinking fund is money set aside for a specific, planned expense. Unlike an emergency fund, a sinking fund is for things you know are coming but aren’t part of your regular budget.
Examples include vacations, weddings, or holiday gifts. If you’ll need the money soon, it’s wise to place it in a bank account or a highly liquid investment like a Money Market Fund.
Once you know what you’ll be saving for and its total cost, divide that amount by the number of months until the deadline. You can then save that fixed amount every month.
When it comes to managing money in bank accounts, there’s no magic number that works for everyone. You can instead aim to have the right amount in the right place, allowing you to feel secure and liquid while minimizing “idle” money.
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