[00:01] money in your bank accounts, you could be making a huge mistake. I know so many bank accounts and they think that they are doing well financially. And I get the truth is is that if you're stacking too much cash, it can actually be
[00:15] slowing down your progress on your financial goals. According to a CNBC their cash in a high yield savings account and 57% just keep it in a little interest. Cash management is one of those rarely talked about skills that
[00:30] today I want to share with you why having too much cash in your bank costliest mistakes that you could be making with your money. Also, at the end what you should be doing with your cash instead. So, the first reason why having
[00:44] too much cash is a huge problem is that you will spend more. So, think about it this way. If you have $30,000 in your checking account and you spend roughly $2,500 a month in that account, the extra money that sits in there, you'll
[00:56] you're out shopping and you see something that you like, like a nice pair of shoes, a designer bag, or even just a phone case, you might not actually need that item, but you might splurge on it because you know that you
[01:08] have $30,000 in your bank account. And this just isn't a universal feeling. There was actually a study conducted on this exact phenomenon back in 2010. The paper is called spending on a fly and the researchers analyzed 400 shoppers
[01:21] States. And they found that there was a pattern where people with a higher budget certainty and financial cushion usually spent more freely. So what this account balances, they perceived that they had more room to spend whenever
[01:35] they typically ended up overspending. So, if you're the type of person who bank account and you run your entire life from that one account, it can be really dangerous. If you have your emergency fund, your house fund, and
[01:49] car, and you're just lumping all of that money together in one account, the that your balance may trick you into thinking that you can spend more than you should. But in reality, you're just dipping into your emergency fund
[02:02] to automate some of your paycheck into different types of buckets. So, you employer or you can even do it within your online banking. Whenever you do get paid, perhaps you move a portion of that paycheck into an investment account or
[02:16] of savings account for whatever your short-term goal might be. The second that your cash is not working for you. This is actually a problem I ran into in my early 20s. I just kept all my money in a checking account and I didn't
[02:30] investing. When you keep your money in a traditional bank account that pays you say a 0.1% interest rate, it means that your cash number one is not working for you and number two you are incurring a huge opportunity cost because of that
[02:43] have a personal story about this. I have a friend who's an amazing YouTuber here on the platform. I will not name him, but he makes a really great income. I think he makes around $20,000 a month and sometimes even more. He confided in
[02:56] me about a year and a half ago that he's afraid to invest. He just can't get over the mental hurdle of investing. So, he was just stacking up all this cash in actually watches all of our videos on this channel. And even with all the data
[03:09] how it's going to grow his wealth over time, he was still afraid to put his right now, I'm going to pop up our actual conversation that we had from October 8th, 2024 when I asked him if he had invested some of his money yet. You
[03:23] can see that he was still waiting as of October 9th, 2024, and he thought that the market had topped at this time. At that time, he had $80,000 in cash waiting to invest. And he actually never ended up investing, which is just a huge
[03:35] shame because if we take a look at the S&P 500 on October 9th, 2024, it was trading for $5,792. And now about a year later, it's at 6700. That's about a 15.6% gain that he missed out on because he was afraid to
[03:50] put his money to work. And so on an $80,000 sum of money, that's $12,480. forgone. Now, for this person in particular, because he can't get over the mental hurdle of investing, I'm just going to tell you that he actually ended
[04:05] 3 months ago, just so that he didn't have to deal with the fact of not knowing when to invest. He is now paying a 1% standard fee to have a financial adviser that invests for him. But for him, I think this is the only solution
[04:18] himself, that money would never get invested. The wealthy understand that idle cash just loses money to inflation, which we will talk about quite shortly. But they are always asking themselves, how can my $1 right here generate more
[04:31] three today is that people think that they need more excess cash than they do. And I actually call this the excess cash illusion. So it's no surprise that typically for safety reasons, but people just like to have more cash, just like
[04:45] money as a YouTuber and not investing it. I have some other friends who have tens of thousands of dollars in cash, and some of them actually keep that see this a lot with immigrant families as well. There's a lack of trust in the
[04:59] this excess cash, perhaps if it's under your mattress, is hurting your ability reference, I think an emergency fund should really only be comprised of a few your rent or your housing payment. I think it should also cover your
[05:13] groceries, like the basic essential groceries out there, not like the Whole also want to add any outstanding utility bills you might have and any outstanding debt payments that you have to make on a monthly basis. Once you add up all of
[05:26] of expenses that you should base your emergency fund off of. So, usually you want to have between 3 to 6 months of this number saved up. This is the money lost your job or a real emergency comes up. This fund allows you to keep your
[05:40] life going until you find another source of income. Any cash that you are range of emergency funds is really not that efficient and should either be deployed for investing and future wealth building or it should be serving a
[05:53] goal in mind. The most consistent advice that I can give you is that if you need the money within 5 years, it should not be invested because you could lose it if just keep that money liquid in a bank account. When it comes to keeping liquid
[06:07] funds, whether that's an emergency fund or the money that you have saved for a you're earning the highest rate that it can be getting, and that's usually in a high yield accounts are paying around 3.5% as of filming right now. So, on a
[06:21] bank balance of say $30,000, that's an extra $1,050 per year that you could be getting just for keeping it in there. And high yield accounts are still liquid money at any time. I personally keep any excess funds that I have in a high yield
[06:36] tool to some of my favorite high yield accounts in case you are looking for an option. Now, you could also consider CDs like certificate of deposits or treasury slightly better rates, but I still think the lowest hanging fruit is simply using
[06:50] most liquid. The fourth reason why having too much cash is a mistake is that it loses value to inflation. If we take a look at the Fred M1 money supply, that includes bills, checks, basic savings accounts, and other assets that
[07:03] can be converted into cash quickly. The supply of money has been rapidly expanding since 2020, which is lowering the purchasing power of our existing inflation. And every year, the purchasing power of your money
[07:16] decreases. With inflation averaging 3 to 4% annually as of recent, and we've seen it even spike to 8 to 9% in recent years, your 10K, 20K, or even 50K in excess cash that might be sitting in a bank loses value every single day. So,
[07:29] let me give you an example. If you have $50,000 in your savings account today, and inflation averages just 3% per year, well, in 10 years, that same $50,000 will only buy what about $37,000 buys today. And you might have seen this in
[07:44] years. I'm going to put up on the screen some of the prices from 2019 to now and how they've changed. A Chipotle burrito back then was $8.50 and today that's closer to $12. The median price of a new car was $38,000 and now it is $48,000 as
[08:00] a gallon of gas. While this does fluctuate from time to time, the average still went from around $2.50 to $3.20 today. So imagine your bank account during this time stayed the same. That's
[08:13] probably fine. But what you can buy is completely different now. $50,000 in completely different now. $50,000 in 2019 could have bought you 5,882 Chipotle burritos, but now it can only buy you 4,166
[08:25] burritos. That's 1,700 plus fewer burritos. And for what? Inflation? I have a lot of ideas on what I could do with 1,700 burritos. I can make a whole them like footballs to everybody in the
[08:38] point is is that you can now afford less with the same amount of money. And so that we're at least beating out inflation when it comes to our cash for you don't have to just buy stocks in order to beat inflation. There are tons
[08:53] of other assets that you can own. In fact, I made a whole video about five assets that you could own instead of cash, and I will link to that video down video. For example, you could own real estate, you could own commodities, you
[09:05] could own collectibles, or perhaps even eyebonds. Real estate can be a pretty you own a tangible piece of land or property, that property will always be disasters or anything like that. As we print more money, that means there will
[09:20] be more dollars chasing the same amount of goods out there. And land is typically a fixed supply type of asset. So that could be a benefit if you own land. The wealthy don't like to keep too much excess cash because cash is kind of
[09:32] like a depreciating asset. It is losing its value over time. I know it's kind of hard to think of it that way, but it's almost like driving a car. A car loses sure that if we do have cash now, we're at least using it to some degree to
[09:45] generate more cash into the future. And the next reason why having too much cash fools you into thinking that you are actually being good with money. The Dunning Krueger effect is a cognitive bias where people with low ability in a
[09:59] overestimate their skills. This is often because they don't know what they don't accurately gauge their performance. And oftentimes the victims of the Dunning their own fallacies. The funny thing about this effect is that it's very hard
[10:14] to overcome because someone who is incompetent at something, it keeps them are. So, you'll see this play out in real life all the time. People will Warren Buffett because they've made some money day trading or perhaps they've
[10:27] transaction and now they think they are, you know, Grant Cardone or something like that. In terms of having too much cash, if you have $60,000 saved up, you better than most Americans, and that may be true, but you're doing better than
[10:41] failing at the real goal, which is wealth building. Having a lot of cash being smart with money often means that you have relatively little cash because Remember that the thing you should be keeping track of isn't your bank account
[10:56] balance, it's your net worth and your asset number. All right, so now that we know some of the reasons why having cash is a mistake, what is the actual right personally think that the right amount of cash to have in your accounts is the
[11:09] combination of your emergency fund plus any short-term savings goals that you might have. So, let's say you have a six-month emergency fund of $25,000 and that you're also saving towards a house and you have $20,000 saved up for that.
[11:22] Then the right amount for you might be $45,000 in that case. And hopefully yield account, at least earning you between 3 to 4% in interest. I think one can do today is to calculate exactly how much of an emergency fund you actually
[11:36] need and then create a separate bank account for your emergency fund as well as your short-term savings goals. And my hope is that the money that you have for these funds is in a completely different account from your main checking account
[11:48] see you have an automatic transfer from your main checking account where you get your paycheck and perhaps part of your paycheck goes to your emergency fund or a car, or perhaps buy more Chipotle burritos. And then the last thing that I
[12:02] would do is also set up a calendar reminder every 3 months to review your accounts. This will make sure that you are keeping all of your steps in check. fund is not growing too large and you want to move any excess cash that you
[12:15] raise, you want to increase the amount of automatic contributions to your short-term savings goals or your future investment goals. I hope that you found check out my video on the five assets that I think you can invest in besides
[12:29] right here. If you are looking for a high yield savings account, I will leave a link to those down in the description box below. And I will see you guys in the next video. Thank you for being here once again. Peace.
[12:42] once again. Peace. [Music]