How Much Money Should You Keep in Your Bank Account?

source: investopedia

In India, most people have bank accounts to save money for future use or in case of emergency. Many individuals have limited sources of income, and after deducting all their needs, they are left with a small amount of money. In this case, people split the funds into savings and disposable income.

This article will discuss how much money you can keep in your bank account and the different savings rules.

There are no certain limitations on how much money you can keep in your bank account. But you must have around six months of your income in the bank as it can be useful in case of emergency. However, due to the increase in inflation rate and instability of jobs, you must save funds in the bank for easy access to fulfil your basic requirements.

Finally, after saving money for an emergency, you must invest the remaining funds in various financial instruments like equities or mutual funds. You can even opt for insurance as it will secure your future and your family's in case of any mishap.

The amount that you should keep in the bank depends on your budget. You should make sure that you withdraw less from the account as it will affect your finances in the future. You should keep at least six months of your income in the savings account as these funds will support you in case of any emergency or financial requirements.

While following the rule of savings, you should consider saving more and contribute more towards this. You can do it by limiting the percentage of wants and depositing those funds to your savings account in the bank.

Financial emergencies can occur without warning; in this case, you must be ready. Saving money is crucial as you can prepare your emergency funds accordingly as without it you will have a massive impact on your finances. You must also ensure that these funds are liquid to use whenever required.

How much money you can keep in your bank account as emergency funds depends on your income, expenses and savings amount. However, it is suggested that you must have at least three to six months of your living expenses as emergency funds. Further, if your income fluctuates, you should try saving more for any emergency.

1. 50/30/20 Rule

It is a budgeting rule that assists you in distributing your income into three different sections: 50% on your needs which includes paying the bills, rent, mortgage, premium and fetching food and groceries. 30% on your wants such as movie nights, occasional dining, seasonal shopping or leisure travel. The remaining 20% on savings or investments in various financial instruments like securities market, insurance and other sources.

Read More: What is the 50-30-20 Rule

2. 50/15/5 Rule

3. 80/20 Rule

4. 70/20/10 Rule

Another budget technique is the 70/20/10 rule, in which you should spend 70% of your income on living expenses, 20% on repayment of debts and the remaining 10% on savings.

More money in your savings account will help you in emergencies and financial constraints. It will help you achieve your financial goals and fulfil your dreams. Therefore, as discussed above, it depends on how much money you can keep in your bank account as savings and emergency funds. But it is advisable to invest in the securities market and buy insurance for future benefits.