Never Keep Over THIS AMOUNT in Your Bank

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humphreytalks, humphrey yang, personal finance, investing, budgeting, wealth, cryptocurrency, stocks

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00:00If you're keeping over this amount of money in your bank accounts, you could be making a huge

00:04mistake. I know so many people that have too much money in their bank accounts, and they think that

00:08they are doing well financially, and I get it, it feels safe and responsible. But the truth is,

00:12is that if you're stacking too much cash, it can actually be slowing down your progress on

00:17your financial goals. According to a CNBC article, 82% of Americans don't keep their cash in a high

00:22yield savings account, and 57% just keep it in a traditional savings account, earning little

00:27interest. Cash management is one of those rarely talked about skills that you should have in

00:31personal finance. And today, I want to share with you why having too much cash in your bank account

00:35could be one of the most costliest mistakes that you could be making with your money. Also, at the end

00:39of the video, I will tell you exactly what you should be doing with your cash instead. So the

00:43first reason why having too much cash is a huge problem is that you will spend more. So think

00:48about it this way. If you have $30,000 in your checking account, and you spend roughly $2,500

00:52a month in that account, the extra money that sits in there, you'll just be tempted to spend

00:57more of it. If you're out shopping and you see something that you like, like a nice pair

01:01of shoes, a designer bag, or even just a phone case, you might not actually need that item,

01:05but you might splurge on it because you know that you have $30,000 in your bank account.

01:10And this just isn't a universal feeling. There was actually a study conducted on this exact

01:15phenomenon back in 2010. The paper is called Spending on a Fly, and the researchers analyzed

01:19400 shoppers from two grocery stores in the United States, and they found that there was

01:24a pattern where people with a higher budget certainty and financial cushion usually spent

01:28more freely. So what this means is that when people had higher account balances, they perceived

01:33that they had more room to spend whenever they were shopping for groceries, and they typically

01:37ended up overspending. So if you're the type of person who likes to keep a lot of cash in

01:41their bank account, and you run your entire life from that one account, it can be really dangerous.

01:46If you have your emergency fund, your house fund, and maybe you're also saving to buy a

01:50new car, and you're just lumping all that money together in one account, the problem you actually

01:54might run into is that your balance may trick you into thinking that you can spend more than

01:58you should. But in reality, you're just dipping into your emergency fund reserves. An easy solution

02:03here is just to automate some of your paycheck into different types of buckets. So you should

02:07be able to set this up with your employer, or you can even do it within your online banking.

02:11Whenever you do get paid, perhaps you move a portion of that paycheck into an investment

02:15account, or an emergency fund, or a different types of savings account for whatever your

02:19short term goal might be. The second reason you don't want too much cash is that your cash

02:23is not working for you. This is actually a problem I ran into in my early 20s. I just

02:28kept all my money in a checking account, and I didn't realize that there was this thing called

02:31investing. When you keep your money in a traditional bank account that pays you, say, a 0.1% interest

02:36rate, it means that your cash, number one, is not working for you. And number two, you are incurring

02:41a huge opportunity cost. Because of that cash, it's just not doing anything. So I have a personal

02:45story about this. I have a friend who's an amazing YouTuber here on the platform. I will

02:49not name him, but he makes a really great income. I think he makes around $20,000 a month and

02:54sometimes even more. He confided in me about a year and a half ago that he's afraid to invest.

02:59He just can't get over the mental hurdle of investing. So he was just stacking up all this cash in his

03:04bank account. Oddly enough, he actually watches all of our videos on this channel. And even with all the

03:09data and all the facts about investing and how it's going to grow his wealth over time, he was still

03:13afraid to put his money into the market. So on the screen right now, I'm going to pop up our actual

03:17conversation that we had from October 8th, 2024, when I asked him if he had invested some of his money

03:23yet. You can see that he was still waiting as of October 9th, 2024, and he thought that the market

03:28had topped at this time. At that time, he had $80,000 in cash waiting to invest, and he actually never

03:33ended up investing, which is just a huge shame. Because if we take a look at the S&P 500,

03:38on October 9th, 2024, it was trading for $5,792. And now about a year later, it's at $6,700.

03:46That's about a 15.6% gain that he missed out on because he was afraid to put his money to work.

03:51And so on an $80,000 sum of money, that's $12,480. As of filming right now, that was forgone. Now for

03:59this person in particular, because he can't get over the mental hurdle of investing, I'm just going to

04:03tell you that he actually ended up signing on with a money manager about three months ago,

04:07just so that he didn't have to deal with the fact of not knowing when to invest. He is now paying a

04:121% standard fee to have a financial advisor that invests for him. But for him, I think this is the

04:17only solution because otherwise, if he was doing it himself, that money would never get invested.

04:22The wealthy understand that idle cash just loses money to inflation, which we will talk about quite

04:26shortly. But they are always asking themselves, how can my $1 right here generate more dollars in

04:32the future? Point number three today is that people think that they need more excess cash than they do.

04:36And I actually call this the excess cash illusion. So it's no surprise that people like to hoard money.

04:41I mean, typically for safety reasons, but people just like to have more cash. Just like my friend

04:45who's earning way too much money as a YouTuber and not investing it. I have some other friends who

04:50have tens of thousands of dollars in cash. And some of them actually keep that physical cash under

04:55their mattress. I see this a lot with immigrant families as well. There's a lack of trust in the

04:59financial system. But I think having this excess cash, perhaps if it's under your mattress,

05:03is hurting your ability to compound your wealth. Now, for reference, I think an emergency fund should

05:07really only be comprised of a few factors. Number one, it should cover your rent or your housing

05:12payment. I think it should also cover your groceries like the basic essential groceries out there, not

05:16like the Whole Foods or the Airwans of the world. You also want to add any outstanding utility bills

05:21you might have and any outstanding debt payments that you have to make on a monthly basis.

05:25Once you add up all of these payments, this is the single month of expenses that you should base your

05:29emergency fund off of. So usually you want to have between three to six months of this number

05:34saved up. This is the money that you would need in case you ever lost your job or a real emergency

05:38comes up. This fund allows you to keep your life going until you find another source of income. Any cash

05:43that you are hoarding beyond this three to six month range of emergency funds is really not that

05:47efficient and should either be deployed for investing and future wealth building, or it should be

05:52serving a purpose like it has a specific savings goal in mind. The most consistent advice that I can give

05:57you is that if you need the money within five years, it should not be invested because you could lose it

06:02if you invest it. So instead you should just keep that money liquid in a bank account. When it comes

06:06to keeping liquid funds, whether that's an emergency fund or the money that you have saved for a

06:11specific goal, you want to make sure you're earning the highest rate that it can be getting. And that's

06:15usually in a high yield savings account. Currently high yield accounts are paying around 3.5% as of

06:20filming right now. So on a bank balance of say $30,000, that's an extra $1,050 per year that you

06:27could be getting just for keeping it in there. And high yield accounts are still liquid enough and

06:31you can still access your money at any time. I personally keep any excess funds that I have in

06:35a high yield account. And I will also link below a tool to some of my favorite high yield accounts

06:40in case you are looking for an option. Now you could also consider CDs like certificate of deposits or

06:44treasury bills over high yield accounts for slightly better rates. But I still think the lowest hanging

06:49fruit is simply using a high yield account because it's the most liquid. The fourth reason why having too

06:54much cash is a mistake is that it loses value to inflation. If we take a look at the FRED M1 money

06:58supply that includes bills, checks, basic savings accounts, and other assets that can be converted

07:03into cash quickly, the supply of money has been rapidly expanding since 2020, which is lowering the

07:09purchasing power of our existing dollars. This can also be referred to as inflation and every year

07:14the purchasing power of your money decreases. With inflation averaging 3-4% annually as of recent,

07:20and we've seen it even spike to 8-9% in recent years, your 10K, 20K, or even 50K in excess cash

07:26that might be sitting in a bank loses value every single day. So let me give you an example. If you

07:31have $50,000 in your savings account today and inflation averages just 3% per year, well in 10

07:37years that same $50,000 will only buy what about $37,000 buys today. And you might have seen this in

07:44your real life in the past five to six years. I'm going to put up on the screen some of the prices

07:47from 2019 to now and how they've changed. A Chipotle burrito back then was $8.50, and today

07:54that's closer to $12. The median price of a new car was $38,000, and now it is $48,000 as of 2025.

08:01And I just wanted to highlight a gallon of gas. While this does fluctuate from time to time,

08:05the average still went from around $2.50 to $3.20 today. So imagine your bank account during this

08:11time stayed the same. That's probably fine, but what you can buy is completely different now.

08:16$50,000 in 2019 could have bought you 5,882 Chipotle burritos, but now it can only buy you

08:234,166 burritos. That's 1,700 plus fewer burritos. And for what? Inflation? I have a lot of ideas on

08:31what I could do with 1,700 burritos. I can make a whole Lego house out of them. I could toss them

08:36like footballs to everybody in the streets, and I could even juggle them. My point is, is that you can

08:41now afford less with the same amount of money. And so therefore we actually need to make sure that

08:45we're at least beating out inflation when it comes to our cash for the sake of the Chipotle burrito.

08:50Now you don't have to just buy stocks in order to beat inflation. There are tons of other assets

08:54that you can own. In fact, I made a whole video about five assets that you could own instead of

08:59cash. And I will link to that video down below and probably at the end of this video. For example,

09:03you could own real estate, you could own commodities, you could own collectibles, or perhaps even

09:07I-bonds. Real estate can be a pretty good hedge against inflation because if you own a tangible piece of

09:12land or property, that property will always be there as long as there are no natural disasters or

09:17anything like that. As we print more money, that means there will be more dollars chasing the same

09:21amount of goods out there. And land is typically a fixed supply type of asset. So that could be a

09:27benefit if you own land. The wealthy don't like to keep too much excess cash because cash is kind of

09:32like a depreciating asset. It is losing its value over time. I know it's kind of hard to think of it that

09:37way, but it's almost like driving a car. A car loses value over time. So we want to make sure

09:41that if we do have cash now, we're at least using it to some degree to generate more cash into the

09:47future. And the next reason why having too much cash is a mistake is that oftentimes it fools you

09:51into thinking that you are actually being good with money. The Dunning-Kruger effect is a cognitive

09:56bias where people with low ability in a particular area, they tend to overestimate their skills.

10:02This is often because they don't know what they don't know, and they aren't sure how to

10:05accurately gauge their performance. And oftentimes the victims of the Dunning-Kruger effect will blame

10:10others for their own fallacies. The funny thing about this effect is that it's very hard to overcome

10:15because someone who is incompetent at something, it keeps them from understanding how bad they really

10:20are. So you'll see this play out in real life all the time. People will often think perhaps they're

10:24the next Warren Buffett because they've made some money day trading, or perhaps they've made some money

10:28on a real estate transaction, and now they think they are, you know, Grant Cardone or something like that.

10:32In terms of having too much cash, if you have $60,000 saved up, you could be thinking that

10:37you're doing better than most Americans. And that may be true, but you're doing better than them at

10:41saving. You actually might be failing at the real goal, which is wealth building. Having a lot of cash

10:46might make you feel smart, but actually being smart with money often means that you have relatively

10:50little cash because it's all deployed strategically. Remember that the thing you should be keeping track of

10:55isn't your bank account balance, it's your net worth and your asset number. All right, so now that we know

11:00some of the reasons why having cash is a mistake, what is the actual right amount to have in your

11:05bank account? I personally think that the right amount of cash to have in your accounts is the

11:09combination of your emergency fund plus any short-term savings goals that you might have.

11:14So let's say you have a six-month emergency fund of $25,000 and that you're also saving towards a

11:19house and you have $20,000 saved up for that. Then the right amount for you might be $45,000 in that

11:25case. And hopefully that's all being held within a high yield account, at least earning you between three to

11:294% in interest. I think one of the most practical things that you can do today is to calculate

11:34exactly how much of an emergency fund you actually need and then create a separate bank account for

11:39your emergency fund as well as your short-term savings goals. And my hope is that the money

11:43that you have for these funds is in a completely different account from your main checking account

11:48where you get your paycheck. I'd rather see you have an automatic transfer from your main checking

11:52account where you get your paycheck and perhaps part of your paycheck goes to your emergency fund or

11:57perhaps the fund to buy your house, buy a car, or perhaps buy more Chipotle burritos.

12:01And then the last thing that I would do is also set up a calendar reminder every three months to

12:06review your accounts. This will make sure that you are keeping all of your steps in check. You want to

12:10make sure your emergency fund is not growing too large and you want to move any excess cash that you

12:15have into investments. Or if you get a raise, you want to increase the amount of automatic contributions

12:19to your short-term savings goals or your future investment goals. I hope that you found this video helpful.

12:25And if you'd like to check out my video on the five assets that I think you can invest in

12:29besides cash, you want to check out this video right here. If you are looking for a high yield

12:32savings account, I will leave a link to those down in the description box below. And I will see you

12:37guys in the next video. Thank you for being here. Once again, peace.

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