It’s no doubt reassuring to log in to your checking account and find a healthy balance, but when that amount gets too high, it might be time to put your money to work.
How Much Is Too Much
The ideal amount of money to keep in your checking balance differs for everyone. A good rule of thumb is to keep enough on hand to cover roughly two months of expenses. When your balance exceeds that, you’re not only missing an opportunity to make that money do more for you, but you’re also risking the temptation of using those easily accessible funds to make unnecessary purchases.
Lazy Money
On average, checking accounts offer a .07% interest rate, which means your money is sitting idle and making no significant gains. When you factor in a conservative inflation rate of 2%, your money is actually losing buying power. Conversely, the average return on stock market investments is 10%, which outpaces inflation and provides far superior growth potential.
Set Financial Goals
When you have excess money in your checking account, it could be a sign that you’re not sure what to do with it. Make a list of financial goals that you would like to accomplish. Start with the essentials, like establishing an emergency fund. Aim to put enough money to cover six months of expenses into a high-yield savings or money market account that offers a better rate of return. Use direct deposit to keep yourself on track and eliminate the habit of letting that money languish in your checking account.
Plan For The Future
If your checking account balance continues to exceed the recommended amount, you might consider increasing your TSP contributions. Be sure you’re putting in at least 5% to take full advantage of the agency match or you’re literally leaving free money on the table. Plus, with the added compound interest, you might be surprised at how much additional growth you experience.
Get Professional Advice
Risk adversity may be another factor driving your financial habits. Sure there’s more uncertainty in investing than simply stocking your money away in a checking account, but there’s also much greater reward. Risk comes in degrees and a certified financial professional, like an FRC® trained advisor, can help you assess your risk tolerance and develop a strategy that fits your needs and goals.
