Is your savings bank killing your financial growth?

It is an obvious blissful and great feeling to know you have a big amount in your bank. If required you can easily go to your nearest ATM and get your money with minuets. However, no matter good it feels, it is not a financially smart decision to keep a large amount of money lying in your bank account. 

There are two issues and no matter how simple they may seem to be but most have been a victim to these. May to it knowingly and few may fall for these unknowingly. 

So what could possibly go wrong in keeping money in the bank?

Well the first and the common issue is - "No Real Returns"

Even if its feels good to have money resting in your bank account, it isn't a good investment move. Most of the saving bank accounts offer you a return of around 3 - 5 percent. Currently, inflation is ranging around 5-7 percent and if you consider these to factors. You are not only actually earning anything but you are losing the value of your money. 

In this case, the real rate of return is not only low its actually negative because you will even have to pay the tax on the interest received on this amount.

Keeping a small amount in your savings bank is not at all bad as it can always serve as your emergency back up but keeping a heavy amount isn't very wise. As the excess money parked in the savings bank is obviously losing its purchasing power over time. 

The other issue here is - No money is ever enough

The second and most crucial financial issue in the history of behavioral finance is that excess money always gets spent consciously or unconsciously. Has it ever happen to you that you have added some money in your online wallets like Paytam, Google pay, etc and before you even realize the amount gets spent.  

The same happens with your excess money lying in the savings bank account. Whenever you see access to the extra money in your bank account, you automatically start to overspend that money. 

The extra money can be easily spent on shopping something extra or ordering food online.
Our mind works in a very different manner when we have money lying in front of us. Supply creates its own demand is one of the principles of economics and very much applicable to money. If you have money in a savings account, you can be sure that your mind will come up with every possible reason to spend it.

Having some extra money available can easily change our attitude towards the money. We become careless or unconscious while spending. Most of the time we think it's only a small amount extra, we can afford this but what we don’t realize is that those small and tiny spending combined together can easily make a big impact on already negatively growing bank balance.

What can you do to solve this issue?

The very first step you can do is to make a budget or a plan. So, you know exactly how much you actually need. 

Secondly, keep an amount equivalent to 2 months of monthly income only in your savings bank account. This will serve as your emergency fund.

If you are one of those who hold an unreasonably large amount in the savings account. The better way after setting aside the emergency fund for you will be to park some of the amounts in Liquid Funds for contingency purpose and then invest the remaining amount into other avenues as per your financial and life goals.

Let the money leave your bank account automatically. One of the best option to make sure your amount is continuously deployed into the better return generating avenues rather than just cluttering around in your savings bank account is to start a SIP or recurring deposit

SIPs make sure that a certain amount is deducted from your bank account every month and is directly invested in high growth avenues. This way even if you are lazy to invest, your money is already and automatically put to work. After you being lazy is fine but the money should work continuously.

So if you have recently sold a property or got a heavy inflow of money or there is a general cluster of your salary parked in your savings account. Make sure you invest it right away to gain some actual returns and avoid overspending.