Recently, I wrote an article about how much is really enough to have in our savings accounts. After thinking about it, I thought to myself, “How much should we have in our checking accounts?” After talking with some people about it, it’s become apparent to me that many people think it should be similar to the minimuim they keep for their savings account.
If you read my last article, you know that your minimum savings should be equal to all of your living expenses plus necessity expenses for each month that it usually takes you to find another job. This is a bit much to require yourself to have in your checking account as well. If you can do it, more power to you. For the rest of us, the idea revolves around purchasing power.
Leave Room for a Cushion
When I was young, when my dad took me back to my mom’s house, we would always leave earlier than it took to get there. He told me to “leave room for a cushion of time.” Thinking back on that in a financial sense, I’ve always believed that having a little cushion of spending money in my checking account has never been a bad thing. The difference between this and a savings account is that your savings account shouldn’t really be touched unless you need it.
In addition to this, you could consider making monthly contributions to your cushion. I will address this later. Keep in mind that your checking account is usually where your payments will come out of. Credit card bills, phone bills, utilities, rent, and even insurance premiums will usually come out of that account.
How Much is Enough?
Ideally, you should have enough in your checking account to account for all of your recurring bills and then some. How much is the “then some?” Well, much like I mentioned in my article about saving money, this will be different for everyone. I would say that it should be equal to your spending money plus possible payments. This begs the question, “How much is possible payments?” This is going to be different, too. However, this should be equal to the amount you have in purchasing power in credit. For many, this will be extremely hard to do. Hence, why this is the ideal situation.
As long as you’re able, you should pick the credit cards you use and allow yourself to have a monthly checking account balance of your purchasing power with those lines of credit. Why am I suggesting this? Because credit cards, as much as people say are for emergencies, wind up being used more often than intended. Whether it’s convenience or benefits, there’s always an unexpected excuse to use one. If you have enough to pay off your credit card balances each month, you will always have money to pay off that once or twice you unexpectedly used it.
Not a “Secondary Savings”
This is going to be a temptation to use this as a secondary savings account, but you should try not to. Such thinking allows yourself to feel comfortable with either using your credit cards more than you can replenish that financial cushion each month or spending it all on an item or two you don’t really need. I’m not saying you can’t have spending money. You should always budget for spending. Rather, I’m saying that you should be more concerned about the fact that it’s a cushion rather than a secondary amount of money to spend on something.
My warning about starting a secondary savings like this, if you decide to do so, is that you ensure that you don’t view it as a spend whenever you want something fund. If you want to use this money for extra spending money, just leave it in your checking account with the rest of your spending money. But viewing it as a “spending savings” account is potentially dangerous. That’s why I urge you to replenish your cushion whenever you draw money from it. You never know when it might come in handy. Especially if it’s a real emergency.