Money Expert: Pinpoint Your Checking Needs With This Percentage
What's the magic number to keep in your checking account?
Humphrey Yang, a personal finance and investment expert, said that there is a sweet spot to keep in your checking account-and you might be surprised you have too much in yours right now. In a recent TikTok video, Yang rolled out steps to find out your personal ideal checking account figure to his more than 3 million followers.
What's your magic number? Read on to find out.
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Calculate Your Monthly Spend
As a first step, Yang said to add up both your monthly essentials like rent, mortgage, debt, insurance and utilities. Then, combine those with what you can comfortably spend on discretionary items, like going out to eat and other luxuries that you don't need every month, but like to enjoy. In the video, Yang uses $5,000 as an example calculation for this budgeting step.
Add a 10% to 20% Buffer
Of course, needs fluctuate, so to prepare for that, you want to add on just a little bit more to your monthly spend to have more on hand in your checking account in case you need it. Yang said that once you have a figure equal to your essentials and your discretionary spend, you should add a 10% to 20% cushion. Using Yang's example of $5,000, 10% of that would be $500 and 20% would be $1,000, so your ideal amount in your checking account would be between $5,500 and $6,000.
Open a High-Yield Savings Account
You probably have seen those low amounts of interest drop into your checking account from time to time. According to Yahoo! Finance, the average checking account rate right now is 0.7%. That low return is why Yang said any money on top of that ideal checking account figure should go to better banking instruments. A checking account is not a great way to invest money, as it earns so little interest.
Instead, additional income should be deposited into a high-yield savings account where you can earn interest on it. Even if you just have under $100 on top of your checking account figure, move it over to a savings account. Soon, it will be making money for you.
According to Fortune, right now there are several high yield savings accounts where you can earn between 4% to 5% APY. Fortune identified Varo Money (5%), Newtek Bank (4.35%) and Axos Bank (4.31%) as the top three interest-earning high yield savings accounts right now.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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