Asked on 12 Feb 2020
By putting your money in a high-interest savings account, what do you do with that interest that you earned? Do you save it or use it to offset your expenses?
I have set percentages for different forms of expenditure, and any amount of money I receive gets allocated based on the set percentages. Hence, I treat interest earned as income (regardless of how little) and this gets allocated based on the percentages. I find this instils discipline and takes care of thinking about what to do every time I receive money, regardless of the source (automation).
Usually I will transfer it to out another savings account (e.g. CIMB Fastsaver) if the amount is substantial. Otherwise, I will just keep it in there.
Regardless of how much interest I earn from a savings account, I keep my expenses less than 20% of my salary every month. As such, I do not use it to offset my expenses. It will be accumulated together with my savings, which I later on use to invest through other investment tools.
The interest gained from savings account will be directed to my investment account as i aim to build up as much capital as possible to invest in equities.
I keep the interests in the saving account so that I could tap on the compounding effect to grow my funds.
With the interest earnd from savings account, I will use it to offset my expenses.
Otherwise if i have no expenses i will let the money roll to generate interest from it as well, the power of compounding.
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I keep only money that I need to use in the near future in the bank. This is regardless of whether it is in a high-yield account or an expenditure account. To do so, I will conduct a cashflow review. Here is how I do it: https://www.blog.pzl.sg/understanding-your-personal-cash-flow/
Thereafter, if the interest earned does not fall within what I need to use in the near future, then I will channel it into other avenues - in most cases investment and other growth tools.
For expenditure, I only spend the money that is allocated for expenditure. This is often done by creating a budget. The best way to do this is via automation and this is how I do mine: https://www.blog.pzl.sg/how-to-create-a-monthly-budget/
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