How much should I keep in my savings account???

Typically, many of us find ourselves keeping all the extra money in our savings account, which could consist of funds for emergencies and liquidity planning, among other purposes.

An emergency fund typically consists of 4-6 months' worth of your monthly expenses, which can be spread across savings account, liquid mutual funds, and fixed deposits to ensure liquidity, stability and optimal management of your finances.

Liquidity Planning is managing your cash requirements for near term goals and emergencies into products that entail stability and easy accessibility.

How much should we ideally keep???

Following the 30:70 rule is recommended for effectively managing your emergency fund - allocate 30% in a bank account, and 70% in Fixed Deposits or Liquid Mutual Funds. (Liquid mutual funds gets you redemption within max of two working days.)

If you keep extra money in a savings account, interest earned will be subject to tax under section 80TTA if it exceeds ₹ 10K, as per your tax slab rates, after earning a return of approximately 2.5-3%, below inflation. This situation presents a dilemma where you may end up missing out on potential earnings.

It is crucial that we shift our focus from working for money to having our money work for us consistently!