T Nation

How Much Cash Should I Have in the Bank?


#1

We make plenty of money. Much is spent, and a lot is saved. So, what to do with the saved portion?

I often hear that one should have "six months of income saved," or "only invest money that you won't need in the next five years."

Wife and I both have jobs. She is a public employee, I am self-employed. We have access to about $100,000 of credit through cards and a home equity line, without any balances. Other debts are mortgage and some student loans. We have great health insurance, car insurance, and home insurance.

My thoughts are that any emergency can be taken care of through credit or insurance. If we want to save money for home improvements (cosmetic and discretionary), and other non-essential things like that, where should we park our money?

(Thanks for the suggestions and no client relationship is implied!)


#2

Whatever amount you can afford to lose when the bank fails.


#3

I appreciate the comment, but what does it mean?

When banks fail, I would think that the only things with “worth” something would be consumables like cows, pigs, etc. Anything that could be bartered and have immediate use.


#4

[quote]MrMuzik wrote:
I appreciate the comment, but what does it mean?

When banks fail, I would think that the only things with “worth” something would be consumables like cows, pigs, etc. Anything that could be bartered and have immediate use.

[/quote]

Not necessarily.

It could be a run on the bank, a computer network failure (either weather-induced or malicious cyberhacking), or simple insolvency. Banks fail all the time. It isn’t dramatic, and you’ll only know about it when you put your ATM card into the machine and it doesn’t work.

If you want to know the future, look to Greece.

All I’m saying is, a bank is only one basket. Have other baskets, and many varieties of eggs. In other words, many currencies, not just the US dollar.

Stocks and bonds and cash (both in banks and in one’s physical possession) denominated in Euros, yen, yuan, Swiss francs, and British pounds (or another currency that doesn’t rise and fall in lockstep with the US dollar) wouldn’t be a bad idea, and a little physical gold, silver, and platinum in a private safe (and perhaps a digital wallet full of Bitcoins) would make me more comfortable than a fat balance at Wachovia bank.

But that’s just me.

Cows and pigs? Nah. Coffee, cigarettes, chocolate, whisky, gasoline and ammunition. Oh, and toilet paper. Plenty of toilet paper.

Cheers.


#5

Everything you don’t spend at the end of your pay period (biweekly, weekly,etc) should go right into savings. I saved about 1000 last month just following this protocol. Now, if you want to retire by 40 (if you aren’t 40 already), I have read that you need to save about
%50 of your income to have about 30k left/year for the next 50 years.


#6

[quote]MrMuzik wrote:
We make plenty of money. Much is spent, and a lot is saved. So, what to do with the saved portion?

I often hear that one should have “six months of income saved,” or “only invest money that you won’t need in the next five years.”[/quote]

I figure out my monthly burn rate and keep 3-4 months in my checking account, although this has built up a lot because I am hunting for private investments.

The rest goes in equities/bonds, although lately I’ve been buying oil royalties due to the silly pricing. I tend to save about 30-50% of my post-tax income, and also max out a Roth 401K to the statutory limit (which is matched dollar-for-dollar). All income from royalties or investments gets rolled back into more investments. I never, ever, spend it.

Anything I spend on day-to-day crap is from ordinary income.


#7

[quote]Varqanir wrote:

[quote]MrMuzik wrote:
I appreciate the comment, but what does it mean?

When banks fail, I would think that the only things with “worth” something would be consumables like cows, pigs, etc. Anything that could be bartered and have immediate use.

[/quote]

Cows and pigs? Nah. Coffee, cigarettes, chocolate, whisky, gasoline and ammunition. Oh, and toilet paper. Plenty of toilet paper.

Cheers.[/quote]

Last time Venezuela went best, I also believe condoms and tampons where in short supply.


#8

What’s an example of a situation where I would need access to cash right away? Should I keep X amount of cash in my checking account, for immediate access? It takes a few days to shift money from investments to cash.


#9

[quote]MrMuzik wrote:
What’s an example of a situation where I would need access to cash right away? Should I keep X amount of cash in my checking account, for immediate access? It takes a few days to shift money from investments to cash. [/quote]

If you have the money I would go beyond any recommendations, for example 12 months emergency savings vs 6. In addition to that the money for any large purchase you may need, like a new car. If its a bad time to sell investments you don’t want to have to sell those just to buy a new car or large home remodel.

The good thing about what I said above is its a measurable and easily achievable goal, for example 75k. Everything beyond that is long term or other investments which is uncapped.


#10

[quote]MrMuzik wrote:
What’s an example of a situation where I would need access to cash right away? Should I keep X amount of cash in my checking account, for immediate access? It takes a few days to shift money from investments to cash. [/quote]

Take the recent situation in Greece, where capital controls were implemented and people who were caught unprepared had to wait in hours long lines at ATMs to get like a 60 EU max withdrawal from their checking accounts. Some were lucky enough to do this before the ATMs were empty.

If you are worried about this, consider having a nice rainy day fund of hard cash immediately accessible, not in a checking account.


#11

In general if you can’t save 30% of your pretax income then you either live in a super expensive area or you’re shit with money. If you’re hurting for money at least get the match from your work 401Ks. Priority should generally be pretax retirement accounts, after tax retirement accounts, then after tax other accounts. Use credit in case of emergencies if you have to. No point having 6 months of expenses sitting around not making you money. You can always borrow from your savings/investings if you have to.

Now if you’re worried about a financial meltdown:
Food/Water
Ammo/Guns
Precious Metals
Survival Skillz that Killz
Cash (probably worthless in a real crisis unless diversified throughout the world)


#12

[quote]MrMuzik wrote:
We make plenty of money. Much is spent, and a lot is saved. So, what to do with the saved portion?

I often hear that one should have “six months of income saved,” or “only invest money that you won’t need in the next five years.”

Wife and I both have jobs. She is a public employee, I am self-employed. We have access to about $100,000 of credit through cards and a home equity line, without any balances. Other debts are mortgage and some student loans. We have great health insurance, car insurance, and home insurance.

My thoughts are that any emergency can be taken care of through credit or insurance. If we want to save money for home improvements (cosmetic and discretionary), and other non-essential things like that, where should we park our money?

(Thanks for the suggestions and no client relationship is implied!)[/quote]

6-12 months.

The rest I think there is two different camps that are valid. Ramsey and Ramit.

I am sure you know Ramsey, but Ramit you can read his book I Will Teach You To Be Rich. And, find him at the website with the same title.

I think that you should start out by investing 10% of your income/mo into investments.

I personally invest 15%. But, that is up to you.

I also picked up Money not to long ago and it is a good read on the investment side of stuff.


#13

[quote]MrMuzik wrote:
What’s an example of a situation where I would need access to cash right away? Should I keep X amount of cash in my checking account, for immediate access? It takes a few days to shift money from investments to cash. [/quote]

6 months. Avoid selling investments for cash, you might have to sell your investments at the worst possible moment and lose up to to 10 years of returns, or even more.


#14

[quote]Xav wrote:

[quote]MrMuzik wrote:
What’s an example of a situation where I would need access to cash right away? Should I keep X amount of cash in my checking account, for immediate access? It takes a few days to shift money from investments to cash. [/quote]

6 months. Avoid selling investments for cash, you might have to sell your investments at the worst possible moment and lose up to to 10 years of returns, or even more.
[/quote]

I am thinking six months is two much money to have wasting away in a checking account. I have things in tiers: cash (about $10K in truck and $20 at home), bank cash (three months), near cash (e.g., bonds/mutual funds/money market ( 9 months); the rest being public securities/land/minerals in about a 40/60 ratio (I am heavy on oil because I understand it).


#15

[quote]thethirdruffian wrote:

[quote]Xav wrote:

[quote]MrMuzik wrote:
What’s an example of a situation where I would need access to cash right away? Should I keep X amount of cash in my checking account, for immediate access? It takes a few days to shift money from investments to cash. [/quote]

6 months. Avoid selling investments for cash, you might have to sell your investments at the worst possible moment and lose up to to 10 years of returns, or even more.
[/quote]

I am thinking six months is two much money to have wasting away in a checking account. I have things in tiers: cash (about $10K in truck and $20 at home), bank cash (three months), near cash (e.g., bonds/mutual funds/money market ( 9 months); the rest being public securities/land/minerals in about a 40/60 ratio (I am heavy on oil because I understand it).
[/quote]

That was my concern as well. 6 months of our income sitting in a bank account would be a lot of money earning nothing or next to nothing. But I do understand the risk of having to sell investments at the worst time.

Thanks everyone for the responses. I was looking for some differing opinions, and the reasoning behind those opinions.


#16

[quote]thethirdruffian wrote:

[quote]Xav wrote:

[quote]MrMuzik wrote:
What’s an example of a situation where I would need access to cash right away? Should I keep X amount of cash in my checking account, for immediate access? It takes a few days to shift money from investments to cash. [/quote]

6 months. Avoid selling investments for cash, you might have to sell your investments at the worst possible moment and lose up to to 10 years of returns, or even more.
[/quote]

I am thinking six months is two much money to have wasting away in a checking account. I have things in tiers: cash (about $10K in truck and $20 at home), bank cash (three months), near cash (e.g., bonds/mutual funds/money market ( 9 months); the rest being public securities/land/minerals in about a 40/60 ratio (I am heavy on oil because I understand it).
[/quote]

I disagree. I recently left my job for a year and 9 months of rehab/recovery (there was no warning before the recurring four surgeries except about 2 days notice).

If I didn’t have cash in a money market account I’d have an even higher stack of debt outside of medical bills.


#17

I personally only keep a very small buffer of cash($500) in my savings account, although I run my finances pretty close to the red line. I put most of my extra cash towards paying off debts or investing in stocks. If I get a big, unexpected expense, I can easily use my excess cash from my paycheck instead of paying off debts/investing.

This is obviously very risky, but I am single and make good money, so I can easily go into spartan mode if need be.