Summary of How Much Should You Have in Your Checking Account?
Main Financial Strategies:
- Understanding the Purpose of Checking Accounts: Checking Accounts are primarily for spending, while Savings Accounts are for saving. Checking Accounts allow unlimited transactions without fees, unlike Savings Accounts which have withdrawal limits.
- Avoiding Large Balances: Keeping more than $5,000 in a checking account is discouraged as it earns no interest, effectively "parking" money that could be better utilized in savings or investments.
- Managing Low Balances: Having too little in a checking account can lead to Overdraft Fees, especially with automatic Bill Payments.
- Recommended Balance: It is suggested to maintain 1.5 to 2 times your Monthly Expenses in your checking account. For example, if Monthly Expenses are $2,000, a balance of $3,000 to $4,000 is advisable to cover bills throughout the month.
- Emotional Aspect of Money: A higher balance may provide a sense of security, but it’s important to transfer excess funds to Savings Accounts to optimize Financial Management.
- Simplifying Accounts: Having multiple Checking Accounts is not recommended. Combining accounts, especially for couples, promotes financial transparency and simplifies Bill Payments.
Methodology:
- Calculate Monthly Expenses: Determine total Monthly Expenses including bills and subscriptions.
- Set Target Balance: Maintain a checking account balance of 1.5 to 2 times the calculated Monthly Expenses.
- Transfer Excess Funds: Move any surplus funds to a savings account to avoid unnecessary large balances in the checking account.
Presenters/Sources:
- Justine from Debt Free Millennials.
The video discusses the appropriate balance to maintain in a checking account, emphasizing that while Checking Accounts are essential for daily expenses, they do not earn interest like Savings Accounts.
Notable Quotes
— 02:00 — « If you have a big balance inside of your checking account that actually can work as a disadvantage to you because that money is not earning any interest; you pretty much are parking it under the digital mattress. »
— 04:50 — « Money makes people emotional, and to me having a bigger checking account balance gives me a little bit of added security. »
— 05:47 — « You'll want to simplify your checking accounts if you have multiple into one and that's because you don't want to have various bills coming out of various accounts. »
Category
Business and Finance