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Hey there, Budget Brigade!
Today, let's delve into a topic that's often overlooked but crucial for maintaining financial stability: cash in hand targets. As someone who believes in the power of strategic planning and prudent money management, I've developed a system that works wonders for me, and I'm excited to share it with you.
First and foremost, let's talk about the cash I like to keep on hand in my checking account. I've found that having at least 1 times my monthly expenses, along with a 30% buffer, provides me with a comfortable cushion to cover any unexpected expenses or emergencies that may arise. This buffer gives me peace of mind knowing that I have sufficient funds readily available without having to dip into other savings accounts or resort to high-interest borrowing options.
Now, you might be wondering why I don't keep all my liquid cash in my checking account. Well, here's the thing: the interest I earn on my checking account balance is minimal, to say the least. Instead, I prefer to maximize my earnings by keeping the bulk of my liquid cash in a high-yield savings account (HYSA). With an interest rate (as of the date of this post) of 5%, my HYSA not only preserves the purchasing power of my money but also generates additional income over time.
Aside from the minimal interest earnings in the checking account, there's also the risk of inflation eroding the value of my money over time. By diversifying my cash holdings across both my checking account and HYSA, I can strike a balance between accessibility and earning potential, ultimately optimizing my financial position.
Speaking of my HYSA, let's talk about my target for that account. I use it as my emergency fund and aim to maintain at least 6 months' worth of expenses in there at all times. This ensures that I have a robust fund to fall back on in case of job loss, medical emergencies, or any other unexpected financial setbacks. Plus, with the accessibility and liquidity of my HYSA, I can rest assured knowing that I can withdraw funds whenever I need them without facing any penalties or restrictions.
Now, let's delve a bit deeper into each component of my cash in hand targets to fully understand the rationale behind them.
Checking Account Target
As mentioned earlier, I aim to maintain at least 1 times my monthly expenses plus a 30% buffer in my checking account. This buffer serves as a safety net to cover any unexpected expenses that may arise, such as car repairs, medical bills, or home maintenance. By having this buffer in place, I can avoid having to rely on high-interest borrowing options in times of need. Additionally, it provides me with peace of mind knowing that I have sufficient funds readily available to cover my day-to-day expenses without having to dip into my savings.
High-Yield Savings Account (HYSA) Target:
My target for my HYSA is to keep 6 months' worth of expenses stashed away at all times. This emergency fund provides me with a financial safety net in case of unforeseen circumstances, such as job loss, medical emergencies, or major car repairs. By maintaining this cushion, I can weather any financial storms that come my way without having to resort to drastic measures, such as tapping into retirement savings, investments, or taking out high-interest loans.
By adhering to these cash in hand targets, I've been able to achieve greater financial security and peace of mind. It's all about finding the right balance between liquidity, earning potential, and risk management—a delicate dance that's well worth mastering.
What's your approach to cash in hand targets? I'd love to hear your thoughts and insights!
<3
Megan
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Disclaimer: I am not a financial advisor. The information provided is for educational purposes only. Please consult with a certified financial professional before making any financial decisions.
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