My friend was appalled to hear I keep 10% of my net worth in cash, but I have 5 good reasons to do it that way (2024)

Not only do I learn a lot about how other people manage their money, but I also receive a lot of advice that I don't always care to follow. Recently, a good friend and I were chatting about our savings accounts, and this friend was appalled to learn that more than 10% of my net worth is sitting still in a bank account.

Even though she tried to convince me to move a big chunk of that cash into stocks, index funds, cryptocurrency, and real estate, I decided to ignore those options and stick to my plan. Here are five reasons why I plan to stick to my own savings plan instead.

1. I want cash on-hand for bills

I've spent the past few years fixing financial mistakes from my 20s, from credit card debt to having $0 in my retirement account. Since I'm still in the process of building and extra careful about not taking on any debt, I like to keep enough cash in my account to pay all my monthly bills and more.

I also keep a few thousand dollars of extra cash in my savings account as a buffer for the months where my bills might be higher than expected.

Even though my friend advised me to withdraw that "buffer" cash and put it in index funds, having that money in my savings account helps me feel like I'm in control of my monthly finances, even if the money goes unused.

2. I need a large emergency fund

A big difference between my friend and I, is our career paths. My friend works full-time at a big corporation. I'm a entrepreneur who has been my own boss for over seven years. Because my work comes with more uncertainty than my friend's job, I'm committed to keeping a larger emergency fund.

While some people aim to save between three and six months of expenses in their emergency account, I've been working hard for years to save close to 10 months of expenses.

This way, I can protect myself in case of any unplanned events. This includes things like income loss because of another pandemic, or a health emergency since I don't get any paid sick leave.

3. I'm maximizing my interest

One of the reasons I'm fond of putting more than 10% of my net worth in my savings account is that I'm able to maximize the available annual percentage yield rate for the interest. With the bank I'm currently using, they offer three tiers of interest based on how much cash you keep in your account.

By putting in more than 10% of my net worth, I'm able to reach the top tier and collect interest. While it's not as much as I could score in the stock market, it's far less risky and worthwhile to hit that high-yield interest.

4. I'm always saving for something big

Over the last few years, I've found myself saving up for big life events, projects, and even bucket list items like vacations and funding my own business ideas. When I'm saving for something specific, I create a special savings account just for that item or event and track my progress on a daily basis.

Even though my friend recommended I put that money into the stock market or cryptocurrency so I can potentially make larger gains and meet my goals faster, I don't want to play with this money — even if there's a chance for a quicker reward.

Though it might take me a longer time to accomplish, when I'm saving for something important I like to put that cash someplace safe.

5. It works for my financial strategy

When determining how much money you should keep in your savings account, there's no one rule to follow. While some people, like my friend, go with the 10% of your net worth approach, it just didn't make sense for my personal financial goals. I'm trying to stay out of debt, build my emergency fund, and plan for the future.

As I continue to optimize my finances, I plan to re-evaluate how much I keep in my savings account and what else I can do with that cash to grow my assets. For now, my financial strategy works for me, even if my friend doesn't think so.