Basically what the title says. I have almost $20k just sitting in my checking account for spending & emergencies, and I know I should probably invest some more of that. Is there a good rule of thumb on how much to keep there & how much of it to invest? For context I have no debt, possibly getting a new car soon, I’m 24, and make roughly $96k.
How much is recommended to have sitting in checking account?
byu/Mammoth_Musician2773 inpersonalfinance
Posted by Mammoth_Musician2773
37 Comments
There’s no rule. Whatever works for you. I only keep a few hundred in my checking.
I would move anything more than a month’s expenses to savings, and then to brokerage after sufficient savings balance.
If you have consistent cash inflows more than outflow, make sure you are putting enough away in your (assuming) payroll deferral for retirement.
Are you an employee? 3-6 months of expenses.
Entrepreneur? 6-12 months of income.
Keep enough to cover your monthly expenses, rest goes in a HYSA
At the very least, move a good chunk of that into a HYSA. You’re losing money just letting it sit there. No reason to have $20k in checking earning nothing.
I’d definitely recommend moving that to a HYSA or a Fidelity cash management (that’s what I use for checking to get money market rates). $20k would be earning 700/year at 3.5% interest even before you decide to invest it
For investing, do you have an emergency fund, or is this 20k your emergency fund?
Your checking account should have enough to cover the checks you write each month, and maybe a little extra to cover unexpected things that could come up and require immediate cash. If you have a credit card that you use for most transactions, you can keep checking pretty lean, since you KNOW when that bill is due and can always move extra funds needed in time to pay it. Keep the rest in a HYSA. It takes 2 business days generally, to move money from HYSA to checking, so if you have an extra-high credit card bill coming due, move the money to cover it a couple of days ahead of paying the credit card.
Dunno about others but I keep 2 months mortage + 2k. I keep a decent chunk in a HYSA if anything emergency comes up. Anything else ill invest but I also keep a daily buy order of about $80 worth of various stocks
I start each month with $4k in my checking. I start with 4k because 3k rent gets paid on the first and I want a buffer in case I need some cash. Then my paychecks get deposited there and after paying all bills for the month anything remaining over $4k goes to high yield savings or brokerage.
Answers gonna be different for each risk profile, since you have no debt I’d consider using your CC to float any payments as long as you have both autopay and pay balance in full setup and keep enough in checking to pay for your average monthly bill + rent + enough for a car repair. Any excess I’d move to a HYSA to save for your car goals, only after that would I invest.
if he has to hide it he knows it is wrong
I do our financial reconciliation (which basically amounts to paying off credit card balances) on the last day of the month. Knowing my mortgage hits on the seventh, I leave $300 plus the amount of the mortgage. Rest goes into a HYSA. I don’t use my checking account for anything except monthly Xfinity and heating bills.
There’s absolutely no reason to have $20K earning 0 in a checking account for someone with your financial profile, OP.
1-2 months expenses is good to cover all bills with some wiggle room. Put rest of that 20k into a HYSA for an emergency fund if you don’t have one already. You can earn better interest that way or interest at all as some checking have zero.
Tally up what flows out of your account each month and multiply by 1.5x or 2x.
I like to keep 1 month of outflow plus expenses coming up soon (such as vacation expenses).
$5k? I make nearly $300k/yr, only have monthly expenses in there, rest is auto invested into VOO monthly.
Figure out your monthly bills and multiply by 6 and put that amount in a high yield savings account. And I strive to keep a $1000 buffer in my checking account. Is any of the $20k for a down payment on your new car?
By payday I usually have a couple hundred left in checking. Everything that doesn’t go to expenses gets saved and/or invested.
Depends on your monthly expenses.
I regularly have about 1.5-2x my monthly expenses.
All my mortgage n cc bills and utilities comes out of checking. So I carry extra just in case anything crazy happens. Or over spending on cc etc and autopsy doesnt f me over.
I draw my checking account down to almost nothing each month after expenses for the month close out. Maybe a ~$2k buffer or so. Helps me make sure I sweep as much as possible into investments, given that we have adequate emergency fund already, and use credit cards for variable expenses.
May not be right for you if you have less predicable expenses or use debit/checks for miscellaneous expenses.
20k honestly doesn’t sound that crazy at your income especially if you might buy a car soon personally I’d just make sure enough is there for emergencies and short term stuff then put the extra somewhere that at least earns something
having too much cash sitting around starts feeling bad once you realize inflation is quietly eating it
No more than $100 above your routine monthly spending.
Everything else moves to either a high yield savings account (HYSA), Treasury ETF, or a Treasury money market fund. Treasury money market fund examples: Fidelity’s FZFXX, Schwab’s SNSXX, or Merrill Edge’s FSIXX. The top 2 Treasury ETFs are SGOV and VBIL.
I keep 100% in the fidelity brokerage acct. no need for a secondary checking acct. getting 3.5% interest since the default cash position is a sweep in a MMF
Emergency fund should be at least 6 months of living expenses imo. In this economy it takes a long time to find a job for most. Either use a MMF or HYSA to keep it in.
20k is only one month of expenses. I’d say you’re fine
Honestly just move it to a high yield at like weathfront. Easy to get immediately if something happens and you can keep adding to it but you’ll be making 3%-4% monthly depending on the rate.
Depending on your bank. Expenses, and how much money you need liquid. So here’s an example
Let’s say your bank requires a DD of 1000 a month to avoid fees, or a minimum balance of 1500. If your rent is 2k and you spend 1k on all other expenses
You should only keep, 3-4k in checking. And the rest in a savings account (something that gives you 3-4%) if you don’t see any big expenses. Coming around, you can look into getting a CD for the money so you lock in a good rate for a fixed amount of time)
You could also look into opening a brokerage account, funding a Roth, and a 401k.
For checking, enough each month to cover the autopay linked to the account. Every month I top it off to cover the next month.
$20k in checking is ridiculous. That’s way too much to have in there. I would invest most of that and keep a comfortable amount depending on what your monthly expenses are. Most of it could go into a money market account or something similar that you can easily pull from if needed. You’re missing out on a lot of money by having it sit there making no interest.
I keep like 1-2k just in case anything random hits. Keep the rest of your savings in a HYSA
I keep $1k in a slush fund for random crap and the other sits at either $2,400 or $2,000 and then pays off bills and small stuff. Whatever’s left before my next check goes into HYSA
Only your emergency fund and whatever your monthly bills are
I keep 10-30 rolling spring I checking depending on the time of the month but my general thought is anything more than 10 can be better served in a CD or SPAXX.
Personally, I keep enough in checking to cover my credit card balance and other monthly expenses; it’s just so nothing gets carried over month to month. The remainder goes into my HYSA, which is sitting at just about $30k. Next focus will be contributing to a ROTH account for post tax retirement.
I keep enough that bills that are paid out of my checking account aren’t giving take the account too low and put the rest in savings. No reason to keep more in checking really
Get Wealthfront. You get 3.5% interest and can pay bills with it and get checks for it. No minimum.
I do about the same, but really anything over 10-12k should be moved into HYSA or VOO. You can get it back out of a brokerage account in a day. So no reason to keep it in checking.