Hello! Please enjoy this blog post from a friend of mine. We have a buffer in our checking account and it gives us major peace of mind. Do you have a buffer?
About a month ago, I discovered we had quite a decent buffer in our checking account. It has always been a lofty goal of mine to get one month ahead in our main household account.
I figured squirreling away a little here and there would contribute to the effort, but I never really took the time to look at how much we had in the account at the beginning of every month.
After a quick budget review, I saw we had a $1,600 surplus in our account! I knew I was squirreling, but I didn’t know I had all of those nuts set to the side. I was just leaving a little in the account at a time, but it’s obvious little unnoticed funds left here and there add up to a substantial amount.
I don’t plan to stop at the $1,600 mark though because it’s not anywhere near a month’s worth of income, but it’s definitely a start.
I’ll continue doing what I’ve been doing — add the money and ignore it.
Hopefully, within another year we’ll reach our goal of being a month ahead in our checking account. There are several reasons I can rattle off about why everyone should have a buffer in their checking account, but I’ll just share a few.
A buffer account can protect you from bad days.
Everyone has bad days.
They come when you’re least expecting them and they can cause serious setbacks when it comes to reaching your goals. It’s Monday morning, you’re already late for work and you have a flat tire on the freeway and you have no spare. Of course, you neglected to sign up for AAA and the tow truck is going to set you back $150.
Once you get your car to where it needs to be, the mechanic informs you it’s going to cost another $200 just to get a new tire put on. He also lets you know that your other tire is treading near the danger zone and it’s probably due to that alignment you need. See how easy it is to have an unexpected $500 expense on a bad day?
What about an unexpected visit to the emergency room? Most ER visits cost at least $100 with insurance. After visiting the ER, you’ll probably need some prescribed medication. This doesn’t include the day you missed from work because you were waiting at the hospital all day.
You may also simply overlook an upcoming expense. Your magazine subscription may be set for automatic withdrawal every three months and you forgot about the expense when you overspent at the grocery store last week. You figured you would be safe until your next paycheck, but the magazine subscription withdraws and gives you a negative balance.
Negative checking account balances could cause an overdraft.
Eighteen percent of Americans have overdrawn their account within the last year. In 2014, the average overdraft fee was $30 and these overdraft fees can have a domino effect. One purchase could lead to multiple overdraft fees if several expenses go in at the same time.
There were many times when I incurred multiple $35.00 overdraft fees. Fortunately, this is a distant memory. A $1,600 buffer in the account protects you from these unnecessary fees.
Of course, you can sign up for overdraft protection, but this type of protection doesn’t come cheap. Banks still charge something for this type of service and if your credit card account is linked to your checking account, it could borrow against the balance on your card.
Personally, I declined overdraft protection on my account. In the event purchases are made and money isn’t in the account, the bank will decline the purchase. Many individuals may not even know they can decline overdraft protection, and they pay for it every time the spend beyond their means.
A buffer could help you get a month ahead of your bills.
Wouldn’t it be nice if you could pay all of your current month’s bills from last month’s income? All the money you’re earning this month would be used to pay next month’s expenses. You would have an emergency fund built right into your checking account.
If things went wrong and you lost your job, you would already have next month’s expenses in your account! You wouldn’t even have to touch your actual emergency fund for a whole month. This may not excite many, but it surely excites me!
Being a month ahead gives you great peace of mind. According to a recent survey, a third of Americans earning $75,000 are living paycheck to paycheck. With a buffer in your checking account, this wouldn’t be you! You would be caught up with your bills and would currently be earning income that goes towards future expenses.
Extra money in your checking account brings peace of mind. It will be easy to set things up for auto-pay because you won’t have to guess whether you will be able to make the mortgage on the first. When your insurance payment is due, the money will already be in the account.
If you’re currently living paycheck to paycheck, do what I did. Put a little to the side every paycheck. Use unexpected windfalls of cash and sock away an extra $50 or $100 every single time. Don’t slack up and you’ll eventually notice a healthier checking account balance.
Don’t worry about the money being put to better use in a savings account. Yes, you could earn an additional $1 or $2 of interest if the money were in a savings account. You could also continue to overdraft your account every month and pay a $35 fee each time. The choice is yours.
Bottom line, If there is a cushion in your account, you are protecting yourself and building a strong financial foundation. A cushion gives you flexibility in your budget for any unexpected expenses and prevents bad days from becoming bad weeks.
You may not need a $1,600 buffer, but any bit of cushion would be better than none.
Do you have a checking account buffer? If so, share your tactics for building a buffer with the rest of us.
Author bio: Latoya is a freelance writer for hire who loves talking about budgets and money. Her mission includes paying off $79,000 in student loans and living to tell about it. She’s a full-time, work-at-home mama who shares her journey over at Life And A Budget. Connect with her on Twitter and Facebook.
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I know how important it is to have a buffer, but I am paying off diet and my buffer has been a little low. I am going to decrease my debt payments until I get some extra cash in my account.
Sounds like a plan! Thanks for reading!
I used to hold way too large of a buffer but have been slowly working it back down. I still like to keep $1-1.5k now that we are a one income home. It just helps with timing of payments vs pay day. I hate running my checking account too low so I think I will always keep some buffer in there.
Same here, Thias. It can be nerve wrecking worrying about whether enough is in the account to cover monthly bills. Just makes sense to me to have a month’s expenses already there.
I don’t really keep a buffer in my checking account because of the way we budget. If I had extra money in there, I might be tempted to spend it! We only keep enough money in checking to pay for that month’s bills.
Hehe! Holly, I can certainly understand the temptation. Don’t think I haven’t dipped into ours on occasion:)
Thanks for reading!
I pretty much budget that every expense will be the maximum level and keep an amount to cover that. Of course the expenses don’t ever roll that way, so we have a natural buffer!
That’s awesome!
I think this all makes good sense, but I consider my emergency fund my buffer. I use a credit card, not a debit card, so I’ve never gone into overdraft. And since I can electronically transfer funds from my (interest-bearing) emergency fund account very quickly, I’d rather have my buffer earning those few dollars of interest. Every little bit helps, right? 🙂 I also use a spreadsheet to track my checking account balance, so I always know exactly how much is in there, even taking future payments into account.
Hmmm Amy, I’ve never even considered the credit card angle. That is a very convenient way of doing it and you’re right those overdraft fees would be out of mind if you use a credit card. Some might not have the discipline to pay their cards off in full each month or their completely anti-credit card, so a buffer would more likely work in their favor. And you’re right, those few extra dollars do help. I keep my ER fund in an online banking account. It takes a few days to get there so in the event of having a really big emergency, using the buffer in my checking account wouldn’t set us back as long as it’s not more than the buffer. Then once I get home I can transfer the money back from the ER fund (that’s only if I’ve spent money that is categorized as a true emergency). Thanks for sharing your thoughts, it definitely gets the juices flowing about other possible ways to handle unexpected mishaps.
Thanks. never heard the term buffer used in terms like this. Emergency fund, savings, yea. Learned something.
That’s awesome, Jennifer. Yes, definitely keep it in mind for your future financial plans. It’s a great asset.
You’re welcome! And yes, certainly keep putting those few dollars to the side. You’ll be amazed at how fat your account looks after months of discipline.
Haha, sure does. And with that buffer in your account you can take those lemons and make you some lemonade! Thanks for reading, Jaime!
I agree but at the same time, people who are bad with self control might be tempted to use it all on one bad moment, such as seeing a furniture that looks very good! I work two jobs, the one that pays me the least I let it all go to one account and didn’t touch it and the higher paying one is to used for all bill payment. Recently I moved all my money from the other checking account (where I used to keep my minimum pay wage) to a discover savings account. The interest is .9% and also it let me transfer to my checking account instantly (only allowed to do 6 each month) I like using the checking account as well because it offers me 10 cents for every time I use my card. I personally very satisfied with this situation however it seemed like I saved a lot more on previous way as transferring would require for me to wait and stuff.
Saila,
You are right, this method would require a great deal of self control. I have faltered a few times as well, but never on anything lavish. It was for unexpected needs…our son outgrew his baby carrier a lot sooner than expected so we had to dip into our buffer to purchase a car seat. I made sure it was the best car seat I could find at a reasonable price, nothing extraordinary that would set us back. Self control is a game changer and can help your finances in the long run. If one doesn’t have self control, it would be best to keep this money in a separate savings account; however, one that you could have immediate access to in the event that something unexpected happens and you need money quickly.
We keep $1000 buffer just in case of bad day events like you mentioned. We have a larger emergency fund at a different bank earning a bit of interest, but transferring that money takes a few days. So I guess it’s like a buffer/mini emergency fund. And it definitely gives us peace of mind!
I know it does, and yeah, it is like a mini emergency fund:)
We’ve always had a buffer in our checking account. One never knows if an emergency may come up!
You’re right, Barrie. You never know! Thanks for reading.
We don’t have a buffer, but we are working on emergency savings. If money just sits in a checking account, it won’t stay there long. We have to have it in an account we don’t use daily for it to work for us.
It’s good to know your weaknesses b/c trying to implement everyone else’s plans may work against you.
Great article! I keep an extra $500 in my personal checking account that is a line item in Quicken. I use a TEMPHLD marker where you would usually put the check number in your register and periodically change the date so it’s where I see it.
I also have a TEMPHLD line item for the charges I accrue on my American Express card. I adjust the amount I’m holding to reflect all of the outstanding charges. That way I know I can pay the bill in full each month.
I’ve done this for years and it has worked like a charm!
That’s awesome, Ree. Sounds like a great system you have working for you!