Checking account, savings books, investments: how much to bet on these pillars?

(Photo credit: Unsplash - Bruce Mars)

(Photo credit: Unsplash – Bruce Mars)

While inflation, which hit 5.2% yearly in May 2022, doesn’t seem to be slowing down, it’s more appropriate than ever to ask yourself how much to keep in these different accounts, savings books, and investments. Indeed, high inflation leads to a decrease in purchasing power, and therefore it is recommended to invest in investment vehicles that offer returns that are higher than the rate of inflation. However, it is important to have cash to fund all daily purchases, unexpected expenses, short-term projects, etc. Find out how much to put on which media: checking account, bank books, various investments, etc. in this article.

Minimum on current account

First, remember that a checking account or a demand deposit account is in no way an investment: it is just an account linked to a means of payment that allows you to pay your expenses and bills with a card, banking, check, transfer, or even withdrawals on credit. cards, but also to receive various incomes through transfers or checks (salary, social benefits, various reimbursements, etc.). As a result, the current account is not rewarded. This means that in times of inflation, even low inflation, keeping money in a checking account is the wrong math.

Therefore, it is recommended that you keep a minimum minimum in your current account, namely the amount that allows you to pay all your expenses for the month. You should know this amount, which should be the same from month to month and correspond to all your expenses. This is also the amount that corresponds to your income minus the amount set aside for savings.

In order to accumulate capital, the simple fact of saving money, that is, not spending everything in your checking account, is certainly the first step to take, but it is recommended to increase your capital in order to invest it.

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Emergency fund and amounts intended to finance short-term projects in savings accounts

The first solution is to place the savings in one or more capital guaranteed investments, such as a bankbook. Even if the latter are poorly paid, at a rate far below inflation, they still show a positive interest rate and allow you to return the money you invested there at any time.

Given these characteristics, this is an ideal environment for creating reserve savings or reserve funds. This envelope, which should represent 3 to 6 months’ wages, will be used to pay all unforeseen and urgent bills (garage, locksmith, veterinarian, etc.).

Passbooks are also recommended for saving money for your short-term projects such as financing a vacation, buying a car, etc. However, to finance your projects over a period of 6 months to about 2 years, you can opt for a life insurance fund in euros instead . It is also a guaranteed investment and can also be more profitable than a passbook (regulated savingsbook such as Livret A or 1% LDDS or taxable passbook). For example, in 2022, the interest rate of the best Eurofunds exceeded 1.5%. However, be careful to anticipate your costs if you plan to use the Euro fund to fund your short-term projects. Indeed, the amounts placed in this envelope can be withdrawn more or less quickly in accordance with the agreements. The time it takes to withdraw funds varies from approximately 2 days to 2 weeks.

The amount that will be placed in savings accounts or life insurance funds in euros to finance your short-term projects will, of course, depend on the nature of the project and the amount you want to allocate to it.

Financing of long-term projects on investment instruments

The second solution to multiply capital over time is to invest the savings, i.e., buying an asset to increase its capital either from income (dividends on stocks, bond coupon, rent from rental investments, etc.) . .), or through the realization of a future capital gain, which consists in the resale of an asset (stock, real estate, stock market product, etc.) for more than it was acquired. It is also possible with some assets, such as stocks or real estate, to combine income and capital gains.

The investment is not guaranteed in capital. This means that the income is not guaranteed (its payment can be canceled or the amount is revised downward) and / or that the price of the asset is not guaranteed (it can fluctuate up or down). Note, however, that this risk comes with a potentially higher return than capital guaranteed investments.

Given these characteristics, it is recommended to invest in non-guaranteed capital investments amounts intended to finance its long-term projects, given its risky profile. Thus, you will be able to regularly invest in the stock market through live securities, ETFs and funds, as well as, for example, in the OTC market directly or through funds, in the commodity market through derivatives and ETFs, even in the cryptocurrency market and of course in the real estate market. directly or through SCPI or OPCI shares. Depending on your investor profile, the distribution between these asset classes may vary.

Remember, however, that you must first create a reserve fund, and then determine specific long-term projects (goal, amount to be achieved, investment horizon). You can then set up an action plan to achieve this goal according to your risk profile.

Remember that it is most effective to invest small amounts very regularly. In this way, you will smooth out the risk as well as your savings efforts and will be able to benefit from the magic of capitalized interest.