[audioholic]

Not sure if this is discussed earlier on this thread. Pardon me if it has been done and please quote the related posts if they exist. I have a basic doubt - How much would be the ideal bank balance to maintain with respect to your take home salary? Would this be better off in terms of monthly burn rate * x number of months or in terms of X month take home salary? I am asking this from the investment perspective and not the spending perspective since sometimes I feel I am investing more per month and sometimes less. Currently single and living with parents, my monthly expenditure is limited to transport, personal expenses, food and leisure and travel. Rest of it goes into investments in mutual funds, a tiny bit of stocks(very negligible amount). I have never done an FD or traditional investment over the last five years of earning money. My idea is to get a good financial standing over the next few years as I end up taking more personal responsibilities since this is the time I think I can go big on saving money. Is it a good idea to sit on a huge bank balance or should I maintain negligible balance and dump that money into various investments?

[saket77]

Hi Sankalp!

Many recommend having 6 months worth of monthly expenses in the savings account. But personally I feel it depends on your overheads like if rent, EMIs etc are to be paid. Since you’re already versed well with mutual funds, I suggest you to keep 2-3 months of your expenses (but also depends on the absolute figure in my opinion) in your savings account and anything over that amount may be invested in overnight mutual funds. This will give you slightly better returns from your savings account and reasonable liquidity as well. Capital protection in such funds is also very high, so safety wise you shouldn’t be concerned as well.
If need arises of these funds, they can be redeemed in one business day. Some AMCs also provide instant redemption through IMPS upto Rs. 50K. Rest may be redeemed in normal way which is one business day.

Trust this helps.

Regards,
Saket

[carboy]

Originally Posted by saket77

Hi Sankalp!
Many recommend having 6 months worth of monthly expenses in the savings account.

First option should be linked Fixed Deposits. In each bank account, you can keep upto 5 Lakhs (Upto 5 lakhs is covered by Deposit Insurance). Linked FDs are absolutely liquid.

[SmartCat]

Originally Posted by audioholic

I have a basic doubt - How much would be the ideal bank balance to maintain with respect to your take home salary? Would this be better off in terms of monthly burn rate * x number of months or in terms of X month take home salary?

In your savings account, about 3x times your monthly expenses is fine.

I am asking this from the investment perspective and not the spending perspective since sometimes I feel I am investing more per month and sometimes less. Is it a good idea to sit on a huge bank balance or should I maintain negligible balance and dump that money into various investments?

- Don't put all your savings into equity funds or stocks. If you are saving Rs. 1 Lakh per month, invest Rs. 50,000 per month in debt funds and Rs. 50,000 per month in equity funds.

- Money in debt funds is as good as money in savings account and is equivalent to fixed deposits in terms of returns. If you have any questions regarding debt mutual funds, ask here:
https://www.team-bhp.com/forum/shift...hread-211.html (The Mutual Funds Thread)

- Let's say you want to buy a Rs. 20 Lakh car on a downpayment of Rs. 5 Lakhs and Rs. 15 Lakh car loan. You should pull out this Rs. 5 Lakh from both equity and debt mutual funds.

- Let's say you want to buy a Rs. 1 Cr apartment on a downpayment of Rs. 20 Lakhs. Again, pull out funds from both debt and equity mutual funds.

[audioholic]

Thanks a ton for these responses guys. Much appreciated!

Originally Posted by saket77

in your savings account and anything over that amount may be invested in overnight mutual funds. This will give you slightly better returns from your savings account and reasonable liquidity as well.

I did try this method of investing into overnight funds, namely Mirae Asset Overnight fund but over the last three months or so, I see that the returns are negligible. I am not sure if its even equal to the bank interest I would get in savings accounts. Anyway, we will take that discussion into the mutual fund thread.

Originally Posted by carboy

First option should be linked Fixed Deposits. In each bank account, you can keep upto 5 Lakhs (Upto 5 lakhs is covered by Deposit Insurance). Linked FDs are absolutely liquid.

This is something new to me. Thanks

Originally Posted by SmartCat

In your savings account, about 3x times your monthly expenses is fine.

Thank you for this. Yes I was thinking on these lines. I just am worried about any emergency situation wherein I might need cash at an urgent basis. Just to give an example of some hospital emergency and stuff where medical bills these days are unthinkable, I would be able to just swipe the card for whatever it is. Of course we are all covered by good medical insurance with cashless options, but not sure how an emergency would turn out to be. For this, one option I have is to use my credit card which I otherwise hardly use so that I get a buffer time of a few weeks until the statement is generated and payment date. But if that doesnt work, then I would need an instant source of money. This is one of the few reasons I think if a fat bank balance would also be a good idea.

For the planned big expenses like a car or a home, yes I can always make time and withdraw a few funds to generate money. Regarding allocation to mutual funds, yes we have discussed already a couple of times, and shall continue the same Thanks again for the views.

[SmartCat]

Originally Posted by audioholic

I just am worried about any emergency situation wherein I might need cash at an urgent basis. Just to give an example of some hospital emergency and stuff where medical bills these days are unthinkable, I would be able to just swipe the card for whatever it is. Of course we are all covered by good medical insurance with cashless options, but not sure how an emergency would turn out to be.

Yeah, you have multiple options in case of medical emergency:

- Cash buffer in savings account
- Cashless medical insurance
- Credit cards

For this, one option I have is to use my credit card which I otherwise hardly use so that I get a buffer time of a few weeks until the statement is generated and payment date.

Use your credit card regularly and pay before the deadline. One big benefit of using card regularly is that the bank will keep raising the credit limits every year. I have been using one credit card from the past 20 years now. And now I can theoretically buy a big car with my credit card!

But if that doesnt work, then I would need an instant source of money. This is one of the few reasons I think if a fat bank balance would also be a good idea.

Both debt and equity mutual funds are near-instant source of funds. If you sell debt mutual funds in the morning, you will get the funds in your account the next working day.

[Rajeevraj]

Originally Posted by audioholic

Is it a good idea to sit on a huge bank balance or should I maintain negligible balance and dump that money into various investments?

Personally think you should go full on with investments. You don't have any recurring debt and at least couple of your expense categories are ones you can easily cut down in case of emergencies. So at this time you really don't need to have money for 3-4 months of expenses sitting in your account. If an emergency comes up, you will be able to stretch 2 months of expenses into 3 or 4 if needed.

Emergencies are hard to account for. But the investments you would do in liquid or semi liquid avenues will help.

[vagabond128]

I wrote an article on a simple money equation that summarizes what does it take for an individual to make money.

Here is the link to the article: https://www.linkedin.com/pulse/money...-kumar-kundra/

[M.Dua]

Hi Pramod, Glad you could ask this, 29 is a decent age to have this thought. Can help you here being a Chartered Accountant myself.

To begin with please retain your car for now.

1. Considering you are in search for risk free return and would want a monthly SIP on risk free investment, the best bet for you would be to go for Voluntary Provident Fund, amount upto 100% of your basic salary can be deposited in the account. FD's today are garnering 4.9 - 5.25% return and this will give you approx 7.75%-8.15% return depending on the government policy. On top of everything this will remain tax free to you forever (This year budget has capped this for first time upto Rs 2.5 Lakhs annual contribution). You can withdraw this amount tax free in any dire need if your account is more than 5 years old. Invest say here Rs 12-15k monthly(considering you intend to save Rs 20k monthly).

2. Start contributing to NPS in equity category for a very long term horizon (20-30 years)- say Rs 5000 monthly.

On top of all this you should always have a Medical Insurance for complete family and term Insurance policy(cheaper before 30 years of age).

About your car dreams, wait out another 2-3 years, with your hardwork and increase in salaries in future you would be in position to buy a car with above monthly savings also by then.

Hope this helps you, happy to take your questions if you have more.

[snr]

The initial few years of my professional career, I was mostly inclined on spending on my shopping, travels, etc. Savings wasn't on my mind. But past few years, I've invested in gold, a little real estate, shares etc. I may have started a little late but better late than never. The power of investing in the long term is very crucial.

[100BHP]

Hello All,

I have a query - is doing CFP course beneficial for self management of finances ?

Thanks