How Much is Too Much in Savings?

This might seem like an odd question. You can never have too much in savings, right?

Let me clarify. I mean, do you have too much in your savings account? Is that amount earning 1% in interest when you could be investing it and earning much more?

Personal finances are just that – personal. But make sure you are not taking the easy way out by leaving your money in a low-interest savings account.

Consider allocating your funds across different accounts to maximize your earnings potential.

Emergency Fund
Experts recommend saving anywhere from 3 months to 12 months of living expenses in the e-fund. Generally, you want your e-fund to be easily accessible. This usually means keeping it in a savings account or money market account earning a small interest.

Monitor your e-fund so that you only have what you need in there. For example, if my e-fund is fully-funded at $25k, I will transfer anything above that into another account. On the flip side, if I withdraw from my e-fund, I will have to deposit funds to bring the balance back up to $25k.

Specified Savings Goal
This is your savings account for a shorter-term goal – house down payment, vacation, new car, etc. Since these funds are earmarked for a specific purpose and timeframe, you want to put them in a low-risk account, such as a savings account.

Personally, those are the only two savings accounts I have (for now). Eventually, I will have accounts to save for my future children’s college fund. I make sure that I never have more than the intended amount in either account. Because if I do, it probably means that money isn’t earning as much as it could. In other words, my money is not working for me.

Retirement
Anything that isn’t in a savings account should be in some type of retirement account. Max out your IRAs and 401Ks. Invest other funds in a taxable account. Are investment properties a part of your retirement plan? Because these are somewhat riskier options, the yield on your investments will be much greater than with a savings account.

Again, finances are personal and unique to each individual/family. What works for me may not work for you. However, I hope it was interesting to read about how my family treats savings accounts.

How many savings accounts do you have? Do you have “too much” in savings?