How much money should you keep in your checking account? The answer varies from person to person. It depends on your spending habits, your lifestyle, and what other accounts you have. Here are some general tips that can help you keep the right amount for you.
1. Use Direct Deposit
If you work for a company that will allow you to take advantage of Direct Deposit, it's a good idea to utilize this option so that your paycheck is automatically deposited into your checking account each payday. This is convenient, as you won't have to worry about depositing checks on your own, and typically, your money will appear in your account more quickly than if you have to receive a paper check and find the time to deposit it.
2. Have a Buffer
Keep enough money in your checking account so that you have a good buffer if unexpected expenses come up. You don't want to have just enough to cover the expected and have to wait until you get paid again to have enough to cover the unexpected.
"A decent buffer ensures you’re not blindsided by big one-off expenses," says Brian Martucci at Money Crashers.* "It also keeps you from having to dip into your savings to cover temporary bouts of unemployment or declines in monthly income. That said, most checking accounts earn little to no interest, and even the best interest checking accounts can’t compete with savings accounts when interest rates are high. So don’t simply hoard cash in your daily spending account."
3. Automate Savings
While keeping a strong buffer is recommended, you also don't want to keep too much of your money in a checking account because it could be doing more for you in a savings account. Think about automating your savings so you can build that up and turn to it only if truly needed.
"An automatic savings plan is a type of personal savings system in which the plan contributor automatically deposits a fixed amount of funds at specified intervals into their account," says Julia Kagan at Investopedia. ** "The typical structure of this type is an automatic transfer from an individual's bank account into a savings or investment account every two weeks. Every time the individual receives a paycheck from their employer, the designated amount is automatically transferred into the individual's savings account."
4. Consider Your Spending Habits
If you're having trouble keeping enough money in your checking account, it might be time to adjust your spending habits. Consider canceling some subscriptions and memberships, coming up with cheaper meal options, reducing your energy bills, and finding less expensive forms of entertainment. You might be surprised by how much you're able to save by closely examining how you're spending money and finding alternatives. With the right moves, you can create that buffer.
5. Consider How Much Cash to Keep on Hand
It's good to keep the majority of your money in secure bank accounts, but you might want to keep some amount of cash in your wallet and/or in your home. How much of that is up to you and your lifestyle, but it's worth considering. Your real emergency fund is better off in a savings account, but it can be useful to have paper money in case you are unable to access your money digitally, such as in a power outage. You may also want to keep some on hand for tips and other reasons. Whether you're saving or spending your cash, decide on an amount to keep outside of your checking account.
6. Avoid Overdrafts
Keep enough money in your checking account to avoid having insufficient funds to pay for purchases and fees you owe. There are services that can help protect you from overdraft fees, but it's still best to avoid overdrafts by keeping that buffer. Overdraft protection, which will allow you to roll money from another bank account into your checking account to cover overdrafts, is worth setting up. More here.
Having the right amount of money in your checking account will help you have better control over your finances. Consider the tips to better manage your account.
* https://www.moneycrashers.com/money-keep-checking-account/
** https://www.investopedia.com/terms/a/automatic_savings_plan.asp