How Much Money Should I Keep in My Checking Account?
Have you ever wondered how much money you should keep in your checking account? We can help you figure that out. The team at Capital Credit Union helps members open and manage their checking accounts in Wisconsin every day. We’ll share some tips for knowing how much money to keep in your checking account and how much money to deposit elsewhere.
The Argument for Keeping Extra Money in Your Checking Account?It’s a good idea to keep some sort of buffer in your checking account at all times. If you have an emergency or unexpected expense, you’ll want to have quick access to the cash you need.
You could also make a mistake when balancing your checkbook. If you have bills or your mortgage payment auto-deducted from your account each month, you may find yourself overdrawn. This could result in overdraft fees and unhappy payees. To avoid this, keep some extra funds on hand to ensure all your monthly expenses are covered.
In fact, depending on where you have your checking account, you may be required to have a minimum account balance. If you go below that minimum balance, you may be assessed a monthly service charge. To avoid the risk of overdraft fees and service charges, it’s best to keep a little safety net in your checking account.
How Much is the Right Amount to Keep in My Checking Account?So, how much should you keep on hand? The rule of thumb is that you should keep one to two months’ worth of expenses in your checking account, plus an extra 30 percent. The amount will vary somewhat depending on your income and financial situation. For instance, if you come from a two-income household, you may only need to keep one month’s worth of expenses in your checking account, plus the recommended 30 percent above that.
However, if you do not have another household member’s income to fall back on, it’s a good idea to keep the maximum recommended amount in your checking account should any unexpected financial emergencies arise. So aim to have two months’ worth of expenses plus 30 percent extra on hand.
Likewise, if you have a variable income that changes each month, such as might be the case for a real estate agent, freelancer, or business owner, you may want to keep a little more in your checking account to help you weather the ups and downs of your fluctuating income. Determine your average monthly income based on what you’ve earned in prior years. Then shoot to have a little extra than the recommended amount in your account in case you earn below average one month.
For example, you have a fixed income of $3,000 a month. You should aim to have somewhere between $3,900 (one month plus 30 percent) to $7800 (two months plus 30 percent) in your checking account, depending on your financial situation. If you have an average variable income of $3,000 a month, then you may want to keep a little more than $7,800 on hand.
Having a safety net in your checking account gives you the ability to use this extra money when something pops up unexpectedly. If a small emergency comes your way, you’ll easily have it covered.
What If I Want to Keep More or Less in My Checking Account?The idea of keeping one to two months’ worth of expenses plus 30 percent in your checking account is more of a recommendation than a rule. Your personal situation also plays a factor in determining how much of a balance you should maintain.
For instance, you may be tempted to spend the safety net money you keep in your checking account for non-emergency purposes. If so, maybe you should keep the extra funds tucked away somewhere else so that you can access the money when you need it but also avoid the temptation of spending it. A savings account could be a great option for this purpose.
On the other hand, maybe you feel more comfortable keeping a higher balance in your checking account. Peace of mind is priceless. If you feel having more than the recommended amount on hand will make you worry less and enjoy life more, then go for it. Just be sure that you’re not neglecting your other financial goals by doing so.
You should also be sure you’re making contributions to your retirement and investment accounts. When you accrue interest in higher-yield accounts, you make your money work for you rather than the other way around.
Depending on your financial institution, you may have the option of linking your savings account with your checking account. If so, your credit union may pull from your savings account when you’re overdrawn on your checking account so that you can avoid overdraft fees. In this case, you may prefer to keep more money in your savings account to accrue interest while also knowing you’re covered in the event your checking account is ever overdrawn.
Ready to Open a Checking Account and Get Started?The bottom line is that you should always aim to keep a little extra in your checking or savings account to cover unexpected expenses. It can give you peace of mind and help you to maintain your financial security no matter what. The amount of your buffer will depend on your individual needs and preferences.
Want to learn more about opening a checking account in Wisconsin? Or have questions about other financial products and how best to reach your financial goals? Capital Credit Union has the answers.
We love sharing our expertise so others can learn how best to achieve their financial goals. So give us a call or stop by for a visit. Taking that first small step is all you need to get on the path toward financial empowerment.
These suggestions are general recommendations and may not be best for all persons. Individual’s financial abilities and decisions may vary based on need. Nothing available on or through this Website should be understood as a recommendation that you should not consult with a financial professional to address your particular information.