😱 Is all your money in a Checking account?

When a lot of Canadians get their paycheck, it goes straight to their checking account and the money just sits there until it's spent. But did you know you are losing out on hundreds or even thousands of dollars each year if you don't have any other accounts except for your checking account?

Each bank account has a different purpose. Whether it’s your checking account, savings account, or CDs, they should be used based on what you want to do with the money inside of them.

WHAT’S WRONG WITH A CHECKING ACCOUNT?

The problem: inflation outpacing your interest rate.

Inflation is a general rise in prices over time. Example: a jug of milk. In 2000, a jug of milk cost $3.29. Today, that same jug costs well over $5.50.

The same thing goes for all other goods and services you consume – their prices increase (most often) with time. Everything from pizza to airline tickets, the product itself hasn’t changed at all and yet the price continues to rise. What does this do to the value of your dollar? It erodes it.

Wondering where the value of your money erodes fastest? In a checking account. It’s almost like you’re paying 3% (historical inflation) just to keep your money there.

HOW MUCH MONEY SHOULD I KEEP IN A CHECKING ACCOUNT?

If you’re not making money, you’re losing money. While it takes money to make money, it also takes time. In a checking account, you’re losing both time and money.

So the goal is to keep as little in there as possible – only what you need for day to day expenses and a small cushion. We typically recommend no more than $2-3K above your monthly expenses.

WHAT SHOULD I DO WITH MY SAVINGS?

First question: Do you have any credit card debt?

People with tons of revolving credit card debt and enough money to pay it off sitting in their savings account are doing it wrong. Way wrong. Even though there’s comfort in seeing a large balance in your account, you’re losing SO. MUCH. MONEY. in interest alone. You’re basically moving in reverse. If you can afford to pay your debt balances off with savings, you should do so. Then build your savings back up. Otherwise, your healthy savings account is completely in vain.

Option 1: Divide [Your Paycheck] And Conquer

Consider your checking account to be your centralized depository (aka your “money hub”) for all the income you receive. This includes your salary, side hustle, venmo, etc. From there, automate a portion of your income into a high yield savings account at an online bank. Look for accounts that give you at least 2.5% interest rate. Maybe you even use a few savings accounts based on what you’re planning to buy. As long as one serves the purpose of your Emergency Fund.

Option 2: Get Started With Investing

From there, investing is the name of the game. Your bases are covered, you’re ready for the big leagues. Investing helps you increase the potential return on money while using your savings account as a safety net.