How Much Money To Carry in Checking vs. Savings
This is a common question people ask when they are just starting out. We can help you answer this question, and we’ll get you off on the right foot with money management habits that will serve you well in the future. Your checking and savings accounts are a combination of tools for everyday money management and short-term savings. So, let’s explore various strategies for managing your money between checking and savings accounts.
Keep enough in your checking account to cover daily and monthly expenses
To understand how much money you need to keep in your checking account each month, you must have a good handle on your monthly expenses. You will use this account to pay bills, cover expenses, and to access cash. It’s important to know how much money you spend each month. One way to do this is to keep a daily spending log for three months. Track the checks, debit card payments and other payments you make.
Your checking account might see significant traffic during the course of a month. It’s a good idea when you’re budgeting to sort all of your expenses into categories such as utilities, food, automobile expenses, rent or mortgage, and so on. These categories will give you an idea as to where your money is going each month, and it will help you plan for how much you need to keep in your checking account. It will also help you realize what areas of spending you can cut back on if you are finding that you have little money left over at the end of the month.
There are three general expense categories:
- Fixed expenses: These are monthly expenses that remain fairly constant month-to-month, such as a cell phone bill, groceries or a car payment.
- Discretionary expenses: This is money you spend on things you want versus the things you need, like going to the movies or eating out at a restaurant.
- Financial goals: This is money you put away for future goals like college tuition for a family member, or retirement.
You will want to balance your checking account regularly to ensure that you have funds available for upcoming bills or if you plan to use the debit card associated with the account to make a purchase.
Some people use the online bill payment associated with their checking account to schedule recurring or one-time payments. This feature allows you to plan for expenses and ensure that bills are paid on time. If you use this feature, make sure you have enough money in your account to cover these payments.
You may choose to set up recurring electronic bill payments to be made from your checking account. These payments are made through an Automated Clearing House (ACH) network that transfers funds from one bank account to another. Make sure you have enough money in your account to pay for these regularly scheduled withdrawals. Employers who offer direct deposit of wages also use the ACH system to deposit your wages into your account. Many people prefer direct deposit because the funds are available immediately.