How much money to keep in the bank?

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I have discuss many time in my blog that we should at least save up 10% of our income for savings and investment.

But how much of the 10% should we keep in cash?

People who read "Rich Dad Poor Dad" will understand the theory that keeping too much cash in the bank is only waiting for inflation to erode away the value.

But it is also not recommended to convert all your cash to asset.

Having cash as an asset can be useful, as and when you require urgent payment or you have lose your job you can use the cash you have on hand to handle it. Otherwise you will have to liquidate your asset which take too long and you might be overwhelmed by whatever crisis you are facing.

So if you do not have some cash standing by be it because you converted them to asset or you have never save money before. Now is a good time to start.

1) Start with a mini rainy day fund

This is a strategy taught by Dave Ramsey.

Everyone should start with a mini rainy day fund. $1000 in cash kept in the bank for urgent crisis ONLY!

It may not be much but having that $1000 can get you out of some sticky situation.

2) Build on your rainy day fund

Next is to build that mini rainy day fund to a $10,000 fund.

Now you are seeing some results and remember not to touch this money for any other reason than to pull you out from crisis.

3) Have 12 month worth of living expenses money

Because everyone have different standard of living, this amount will be different from person to person.

For example:

Living expense meant mortgage, utilities, phone bills, groceries, basic transports or whatever you need to carry on your daily life.

For me that amount come down to about $1,200 but I like to be prudent so I will take it as $1,500.

I will then take $1,500 X 12 months = $18,000

Yours might be higher or lower depending on your living standard but whatever the amount may be that will be the saving target to keep as cash.

So it is important that you keep that money and not touch unless it is absolutely necessary to safe guard yourself and your family.