How to Make the Most of Your Cash

You work hard for your money, so it’s important to know how to put that money to work for you and your financial goals. In addition to adopting smart habits like budgeting, automating your savings, and paying off debt, below are three more ideas to help you level up on money management.

1. Check to see if you’re keeping too much cash in your checking account

To be sure, a robust account balance is rarely a bad thing at first glance. But if you’re keeping more cash than you need in a checking account that’s earning little to no interest, this cash drag can keep you from earning a potentially better return on your money – for example, by putting those extra funds into a high-yield savings account or investing it instead.

Many of us are already familiar with the general recommendation of having enough money in your emergency fund savings to cover at least three to six months of living expenses. But how much should you keep in your checking account?

The answer will largely depend on your budget or monthly cash flow.

Remember, the money in your checking account is used for everyday transactions, such as debit card purchases, rent, mortgage, utilities, etc. So figuring out your total monthly expenses can help you determine an appropriate account balance to maintain each month.

Since everyone’s budget is different, there’s no magic number to target. A good rule of thumb is to have enough in your checking account to cover at least one or two months of your living expenses. But you may want to keep a little more just to help cover any extra expenses that can crop up from time to time (especially around the holidays) and avoid potential overdraft fees.

Also include any account minimum balance requirement in your calculations as well.

2. Consider putting any extra cash into a high-yield savings account

If you do find that you’re holding excess cash in your checking account, explore options to put that money to work in a high-yield savings account or CD account. These savings accounts can be great for those working towards short-term goals, as they typically allow you to earn a higher APY than a traditional checking or savings account.

There are many types of savings vehicles to choose from, so it’s important to understand how different types of accounts can work together to help you reach your savings goals. Check out our Guide to Savings Accounts to learn more.

If you have longer-term goals in mind, you may want to consider investing your extra cash instead. For example, if you’re saving for your kid’s college education, think about contributing to a 529 plan. Or if you have a retirement savings account, like an IRA, you can use that money to boost your contributions.

Not sure if you should save or invest? Read our article on Saving vs. Investing.

3. Explore ways to earn rewards on your everyday purchases

Another way to help make the most of your money is to look for a debit or credit card that rewards you for your purchases. The perks may come in the form of cash back, miles, points, or even statement credits.

There’s a wide variety of rewards cards you can apply for that may have an annual fee. Review the card details to see if the rewards and perks complements your lifestyle, so you can get the most value out of the card. For example, if you’re a frequent traveler and the value of the perks you earn with your purchases is greater than what you’re paying for the card, you’re on the right track.

And as a friendly reminder, if you are using credit cards for your everyday purchases, it’s important to pay off your statement balance in full and on time each month to avoid interest charges, which can quickly add up over time.