Is it smart to keep money in cash?

You should keep some cash as it gives you financial stability. If you have too little, you could find yourself in a very difficult situation if you lose your job or if a financial emergency arises. For most people, those savings take the form of an emergency fund. When thinking about your total savings, consider an emergency fund as part of the combination, says Shirley Yang, vice president of Marcus by Goldman Sachs.

What you need to keep in the bank is the money for your regular bills, your discretionary spending, and the portion of your savings that makes up your emergency fund. That means that the exact amount of money you should keep will depend on your circumstances and lifestyle. Investing can give you a better chance of increasing your money in the long run and, more importantly, keeping up with or exceeding inflation. Keeping those savings in a bank account (rather than an investment account) means you can access them when you need them, but it also means that you have a lot of money in one place and it depreciates with interest.

The downside of a higher rate is that you usually can't access your money until the product matures. It's especially important for younger investors to make sure they invest money in the stock market, as they have the most to gain over a long investment horizon. In addition to your monthly living expenses and discretionary money, most of the cash reserves in your bank account should consist of your emergency fund. A lack of focus, especially for long-term goals, such as retirement, may mean that young people are leaving money on the sidelines, he said.

The amount of money in your checking account should be enough to pay your monthly bills, withdraw cash for other expenses, and avoid overdraft fees. If you work in a stable industry, are in good health, and live in an area with a low cost of living, you may be able to save money with just three months of expenses in your emergency fund; if there is a chance of large expenses (or layoffs) coming up in the future, saving more money may be smarter. Instead of trying to follow a complicated and crazy budget with line numbers, you can think that your money is divided into three buckets. This could be because they need the money for something specific and have no other way to pay for it if they don't meet their goals.

It's important that long-term savings increase because, if you don't make a profit with money, inflation will erode your purchasing power over time, according to Lauryn Williams, CFP and founder of Worth Winning in Dallas. Turns out it's possible to keep too much money in the bank, and in fact, storing all your savings there can hurt your long-term financial goals. Starting by explaining the concept of money can help them understand the concept of digital currencies.