How much to keep in savings versus invest?
I'm sure we've all asked ourselves this question at one point, how
much money should we really be keeping in our savings account versus
investing it?
I'm going to share my simple process on how I figure out exactly how
much to keep in my savings and how much money to invest.
I am Tiffany Thomas, a financially free millionaire.
If you're looking to become one of those, make sure and hit that like
button and hit the subscribe button and we are going to dive right in.
All right, so you probably have a savings account already set up.
You know that you should be putting money in your savings account and
you probably are, but you're not sure on exactly how much money to
continue to put in your savings account because you also know that you
should be investing your money as well.
And maybe you've been saving your money and you continue to think, I
know I should be investing this money, but maybe I'll just save a
little bit more.
And then you keep saving a little bit more and more and then that
little bit turns into a lot because you aren't sure on how to invest
or how much you really should be investing because you do want to keep
some money in your savings account.
And if you're thinking, you know, you should invest, but you're not
sure how to do that.
I do have a free Facebook group.
It's called Investors to Seven Figures.
I'll leave a link below in the description, make sure and join that
group so we can talk about how to get your money invested.
But anyway, maybe you're thinking, okay, I want to have an emergency
fund, but I also want to save up for a down payment on a house or a
rental property or even just save up to take a trip to Italy or Hawaii
or somewhere fun.
There's just other things that you want to be saving for.
I'm going to cover exactly how much you should keep in your savings
account for an emergency fund.
And then we will also talk about how to save for a down payment on a
house or a trip that you wanna take or maybe a car that you want to
buy.
Some specific savings goal.
The first step that you want to take is to figure out your essential
expenses.
I'm not talking about your income or all of your expenses, everything
you're spending your money on like an Amazon Prime membership or a gym
membership or maybe more than one gym membership or eating out every
day.
I want you to figure out what your essential expenses are.
This would include things like your rent payment, your utilities, food
that keeps you alive, not necessarily going out to eat for every meal,
just the bare necessities.
And for this example today, let's just say that is $2,500 a month.
Figure out what that would be for your situation and write that number
down.
And then the second thing that we are going to do, the second step is
to figure out which type of emergencies could come up for ourselves
and how much they could cost us.
For example, if we were to get in a car accident, we would probably
have to pay Our insurance deductible for our car insurance, so that
could be one emergency or if we had to go to the hospital for some
reason, we would have to pay our health insurance deductible.
That could be another emergency cost.
Or if you own properties like I do, there could be a furnace that goes
out and that would need to be replaced or an air conditioner or a
water heater, things like that.
Once you've made a list of these different emergencies that could come
up and the cost that would be associated with that, I want you to
total up that amount and then I want you to realize, of course, most
likely not all of these emergencies are going to happen within the
same month.
If there's 10 different emergencies you've listed out, maybe three
would happen in the same month.
Maybe.
Figure out what you think could be possible.
And it's not worst case scenario, and it's not best case scenario.
It's somewhere in the middle.
Figure out the average that it would cost if one or two of these
emergencies came up in one month.
For this example, today we are going to use $5,000.
Now we could just leave it at that and take our essential expenses
every month and decide how many months we want to have in our savings
account for our essential expenses and then add the emergencies that
might come up to that amount, and that would be our total amount we
would have in our savings account.
For example, if we wanted to have three months worth of our expenses
on hand, that would be 2,500 times three, and then we would add in
5,000 for our emergencies.
So the total would be $12,500.
But that's not where we are going to stop today.
We are going to add an extra step because we know if you've watched
any of my videos that if we are investing our money, that our money
will grow exponentially.
If we are leaving our money sitting in a savings account, it is not
going to grow nearly as fast as if we've invested it.
Here's what I want you to do.
Now, I want you to think of different ways that you have access to
cash, and I will give you a few examples.
Maybe you have a credit card that you could put a purchase on and then
pay that off within about 30 days, whatever that 0% interest rate
would be.
Or maybe you have good credit, you can open up a new credit card and
get it with a 0% interest rate for 12 months or 18 months.
You could have access to cash that way that you could pay off over
time with a 0% interest rate.
Or you could even call one of your current credit card companies and
ask them to give you a 0% interest rate for 12 months.
This is exactly what I did with my Discover IT card.
I was making a big purchase.
I was redoing the flooring in two of my properties actually, and I
wanted to just have a little bit extra time to pay that off.
So I called my Discover card company and asked if they would give me a
0% interest rate that I was making a large purchase, and they said
yes, So I was able to purchase that flooring and pay it off over 12
months with a 0% interest rate.
That could be an option for you as well.
Or do you have a home and maybe you have a home equity line of credit
that you have access to or just a line of credit on your checking
account, or if you're a business owner, maybe you could offer an extra
package.
For example, if you do coaching, you could do a five hour intensive
and charge a higher price for that and make a little bit extra money
in one month.
Or if you have a nine to five, maybe there's an option for you to work
some overtime or perhaps you have invested a little bit of money and
you could pull that money out or you could call maybe your home
insurance provider or your car insurance provider and ask them if you
could have a delay in making your payment for a month.
There's quite a few different options that we could have access to at
cash within 30 days if we needed to.
And yes, some of these things like a home equity line of credit would
charge interest, but if we are thinking in the long term, if we can
have more money invested and less money sitting in our savings
account, we are earning more than we would be paying an interest on
some of these ways to get access to cash.
The stock market returns about 10% over time.
So if there is an interest rate that you have maybe on a line of
credit that's 8% or even lower, then that would be lower than the 10%
you would be earning on your money by investing it.
All right, so after you think of all the different ways that you could
have access to cash, I want you to write down the amount that you
would have access to.
For today's example, we are going to use $10,000.
And the reason I want you to think of it in this way is because it is
so important that we are investing our money as early as possible and
as much as possible, I want you to change your mindset of just
thinking, I'm safe if I leave all of my money or the majority of my
money in a savings account because that is not safe.
It is not even keeping up with inflation.
It is not going to grow your money fast enough.
And even if it is growing your money a little bit, you're not going to
be able to live off of that money because that interest rate is so low
in a savings account.
Since we are using $10,000 that we could get access to, that means our
original amount of $12,500 for an emergency fund, we could put that
down to $2,500.
Of course, I want you to think about the gains that we can get by
investing our money, but on the flip side of that, I also want you to
be able to sleep at night.
We don't want to just have, I don't know, $500 in our savings account.
If we have multiple properties and there's lots of emergencies that
could come up, we probably wouldn't be able to sleep at night.
So we want to feel comfortable in sleeping at night, but we want to
invest as much money as possible.
And I want to show you a quick example of how much money we could be
making if we are investing our money.
So I just took the initial $10,000 that we could invest and put it at
a 10% rate of return and then just put five years in here.
So in five years by just having the 10,000 not adding anything extra
ourselves, we would be at $16,453.
And if we were to leave that $10,000 sitting in a savings account,
earning 1% interest over five years, that's only going to give us
$10,512.
You can see the drastic difference if we are investing our money and
just think if we were adding extra money every single month to that
amount, how much more it would grow.
That is how we figure out how much we need to have in an emergency
fund.
And don't go away yet because I'm going to talk about if we want to
save for something else.
But comment below and tell me if this made sense so far.
So just to do a quick recap, we are going to take a look at our
essential expenses and write that number down.
And then we're going to think about any emergency that might come up
and think, okay, how many of these emergencies would really happen
within one month?
And we're going to write that number down and then we're going to
decide how many months we want of our essential expenses so that you
can sleep at night, but also invest as much money as possible.
And then you will add that essential expenses amount for how many ever
months you want to the cost of any emergency that could come up.
And then you're going to think about different ways that you have
access to cash and subtract out the cash amount that you could have
access to.
And that is going to give you your emergency fund number.
Once you have your emergency fund number, if you want to say for
something else, then you can add to that amount.
For example, if you want to save for a down payment on a house, then
what I would do is still invest a certain percentage of my money in
the stock market and then save the other percentage for a down payment
on a house.
And honestly, you could just do 50% and 50% and keep it really easy.
But if you're thinking, oh, I really wanna buy a house this year, then
maybe you want to increase the amount that you would save for a down
payment.
So you could take 70% of that money, put it in a savings account for
your down payment, and then take the 30% and invest that in the stock
market so you can continue to grow your money.
And this could also be if you wanted to save up for a trip to Italy or
to Paris, then you would figure out the exact amount it would take for
the trip and start splitting your money, your extra money, and putting
a certain percentage towards the trip amount, and then still invest a
certain percentage in the stock market.
When you're doing this, I want you to think about what your end goal
really is.
Do you want financial freedom as soon as possible, or do you not mind
waiting a little bit longer and taking a vacation?
It's really about you and what your priorities are, but I really want
you to think about the cost of whatever it is that you're purchasing
now could be sacrificing the dreams that you really want to achieve.
And one of the reasons that I would continue to invest in the stock
market, at least a certain percentage while I'm saving up for
something else, is because you can take that money out of the stock
market if you're investing in certain types of investment accounts, I
have another video all about a brokerage account.
I will leave a link to that above.
And then also a Roth ira.
You can take out your contributions and I have a video about that as
well.
So I'll leave a link to that above, but that way you can still invest
your money and make it grow.
But if you do want to buy a house, buy a rental property, you could
take some of that money out of the stock market and switch it over to
a real estate investment, which is exactly what I did.
That's how I bought my fourth property.
I took money from my Roth IRA and my brokerage account and put that
toward my down payment.
All right, now we should know how much money to keep in our savings
versus our investments.
And if you found this video helpful, please hit that like button and
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Thanks so much for watching.
I'll see you in the next video.