Why I only keep $500 in my bank account

Richard Fang

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NOTE: This is not financial advice but rather an opinion about how I deal with my own finances. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice from this article.

Recently I have been testing this principle of keeping only a maximum of $500 in my bank account at all times. It might sound silly but hear me out.

So why $500?

Ok, let's clarify this first. This is after I pay off all my expenses, including rent, bills, and other similar transactions. Also, I have the advantage of being younger. I have no kids nor big commitments, and in the worst case, I can just move more money into my savings account with every paycheck.

I chose $500 because it’s enough liquidity for me to make short-term purchases without needing to plan. This could include extra groceries, smaller consumer items, or anything you need immediately that is not overly expensive.

Anything larger, in my opinion, should ALWAYS be planned forward, such as a holiday (which isn't really possible with COVID-19) or a laptop. By getting this way of thinking, not only are you forcing yourself to budget ahead if you want something larger but start valuing your savings much more.

So if I am looking to purchase this larger item, I will budget towards it.

So what do I do with this extra money?

It might already be obvious why I'd be doing this in the first place. My goal is to grow my money exponentially when younger to have a buffer for future financial decisions as I get older.

For myself, I invest my money into two categories:

  1. Building your wealth
  2. Building your learnings and education

As boring as it is, this is the reality, especially towards the younger audience reading this. If you don’t do this, the concept of saving will get harder for you, and by the time you have many more financial obligations, you don’t have a solid foundation to start with.

So…let’s start with that concept of building out your wealth first (I will get to learnings later on). If you’re building out your wealth, the next step is to figure out your risk profile.

Building your wealth:

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Are you risk-averse?

Are you risk-loving?

Are you risk-neutral?

There are many ways to figure out your risk profile, but you should know yourself the best. For me personally, I hover around risk-neutral towards risk-loving. I have risk-averse friends who would never touch stocks with a 10 feet pole.

Even though the stock market is a bit hazy right now, with a 2021 correction potentially happening soon, it is still important to learn about the market.

But in the end, no matter what risk profile you are, you can still build out your wealth now through planning ahead, even if you’re risk-averse. One of the best examples of being in this profile but still starting to invest early is to put your goal of buying your first home. It’s one of the soundest investment paths and forces you to save your money early through something like a term deposit.

The goal, however, is still the same — keeping $500 in your spending account. With online savers becoming more popular, I would personally separate your savings into another account, perhaps at a smaller but big enough bank (they tend to offer higher interest rates than the big 4 banks).

If you’re young, in my opinion, you should be more risk-neutral / risk-loving

Well, you have little to no financial obligations, AND you’re most likely young enough to have a safety net called your parents. The best time to take risks is now when you have all this opportunity to do so. Not only this but investing in riskier assets such as stocks, CFDs, or even cryptocurrencies teaches you all about the assets.

Think of it like this: We learn best by doing not watching.

I can assure you that no one is an expert at something by simply watching or reading a book about it. The experts come by actually getting their hands dirty and messing with the assets. If you wanted to mess around with, say, stocks later on in your life, do it now! The amount of learning you get now without fear of losing much is one of our strongest assets in itself due to the little financial obligations we have.

Giving myself as an example, I absolutely had no idea about cryptocurrencies until I actually chucked some money into it. Although my knowledge is still limited, I now understand the basics of setting a wallet up, the advantages and disadvantages of having online vs. offline wallets, what coins are used for transactional / trading purposes, and others more for its use, etc.

I know personally that I would have never learned this properly until I had decided to invest a bit of money in it myself.

What about if you need emergency funds?

Yes yes! I mean, I wouldn’t invest ALL your money in completely risky assets. I do keep some money in blue-chip stocks, which are relatively safe and liquid enough for me to sell if I do it need for an emergency.

Ok, what learnings can you invest in?

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Learnings are something that can build out your experiences to make yourself either:

  1. More valuable in your career
  2. Personal development
  3. Supporting your own business/venture

This could be something from all the way, like an MBA, towards ‘how to start your own business’ courses. The best way of understanding this is to have a solid set of goals for a 2 year, 5 years,s and 10 year period.

Yes — having a 10-year goal may sound absurd, but it doesn’t mean that’s the exact goal you’re reaching. Many people shift as time progresses, but it gives you something to aim at.

Now, what are they missing?

Perhaps a course around data analysis or something along the lines of learning how to work with a piece of software. It’s often invaluable to put that skill in your repertoire rather than having a few thousand extra dollars in your bank account.

So should I invest in my wealth or go to more learning courses?

In my opinion-both, if you can.

They are both valuable for your long-term growth, and some job functions really rely on knowing certain software, tech, or concept, which is super important for you as a person to grow.

Hopefully, this article gave you a bit more motivation to pursue that course you always wanted or buy a few growth stocks you wanted to dabble in but didn’t have the confidence to.

In my opinion, always be wary and $500 is my own amount that I am willing to risk. In my opinion, you can move this number into the thousands or tens of thousands depending on your own risk you want to take.

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