Do you keep a ‘cushion’ in checking?
A new article is posted each day on Blunt Money, where you get plain talk about money and personal finance. If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
Different people are comfortable with different amounts as a cushion in their checking accounts. A cushion is anything above what you need to pay your bills and cover your everyday expenditures. For example, if your bills & expenses added up to $1000 this month, and you kept $1500 in your checking account, your cushion would be $500.
Me, I don’t really keep a cushion at all for the most part. There are occasional times when I will, but it’s not really intentional. In those instances, it’s more a matter of me having withdrawn what I needed to pay an upcoming bill from savings several days sooner than the payment was taken from my checking account. This happened when I paid my taxes, for example. I figured it was better to do that than risk not paying my taxes on time or having an NSF.
I believe in keeping little to no cushion in checking accounts because the interest they earn (if any) is usually abysmal. I’d rather have my money earning signficantly more interest in a high-interest savings account than sitting around in my checking account so that I could feel better. I keep my checking account balanced, and regularly monitor my transactions online as well, so there is no reason for me to spend more than I have, even though I might have, say, $12 in my checking account. I generally feel happy if I have very little in my checking account, because that means that I’ve transferred everything above my regular expense to savings or investments. Of course there are those occasional moments of panic when I try to use my debit card and get “denied” back. Strangely though, the last time that happened was for a $4 charge — when I had over $1000 in the account because a payment had not yet gone through. Oh well, incentive for keeping my account balanced 100% of the time.
June 18th, 2007 at 6:55 am
My approach is identical. Since becoming more savvy with my finances, I find I have the discipline to ensure I never bounce checks and I can keep a bulk of my money tied up in a money market account. Even with the two day delay in getting the funds, I can still access it. And if I am really really in need of emergency funds, I’ve got a credit card to cover me.
June 18th, 2007 at 7:03 am
I don’t keep much of one. Typicallu about $300 - $350
June 18th, 2007 at 9:02 am
I usually try to keep about $100 or so as a cushion just in case I forget something. Though I probably should keep more in it because I have an ING electric orange checking account and earn interest on it! I think I’ve only made about $8 since April but that is 8 bucks I wouldn’t have otherwise!
June 19th, 2007 at 8:24 pm
I never keep any money in my checking account unless I have a bill due. In fact, my checking account regularly has a zero balance. If I have an “emergency” and need to buy something, I just put it on a credit card since I know I have the cash to pay the bill. And I keep about $20 cash in my wallet for a “cash emergency” like having to pay at a parking structure that doesn’t take credit! That actually happened to me and I didn’t have any cash on me, so I had to walk to the closest ATM which was like a half mile away.