Tuesday, January 3, 2023

Situational Awareness With Checking Accounts

Effective management of your personal finances is essential for achieving your financial goals and avoiding financial stress. One important aspect of personal finance management is knowing how much to keep in your checking account and where to store excess funds.

It is important to keep enough money in your checking account to cover your expenses and avoid overdraft fees. According to Consumer Finance overdraft fees “occur when you don’t have enough money in your account to cover a transaction, but the bank pays the transaction anyway.” They can also be costly and add up quickly. According to experts, it is recommended to keep a balance in your checking account that is enough to cover two months worth of expenses plus a 30% buffer. Again, this follows the 50/30/20 rule of principle when dividing money in the correct locations. This will give you a cushion in case of unexpected expenses and help you avoid overdraft fees, which on average are $33.58, according to Bankrate


But what about excess funds in your checking account? Checking accounts do not typically offer any interest, so it is not ideal to keep large amounts of money in a checking account long-term. Instead, it is recommended to store excess funds in a high-interest savings account. By placing your excess funds in a high-interest savings account, you can earn additional money on your balance through interest. It is a good idea to compare the annual percentage yield of your savings account to other banks' offers, as they can vary widely.


Personal finance management involves more than just knowing how much to keep in your checking and savings accounts. It is also important to create a budget, set financial goals, and find ways to save and invest your money. A budget can help you track your expenses and ensure that you are not overspending. Setting financial goals can give you something to work towards and provide motivation to make smart financial decisions. And finding ways to save and invest your money can help you grow your wealth over time. Keep in mind, checking accounts in these situations are a catalyst to help manage what is coming in and going out. It's a reference point of how much money is available to you on demand. 


Managing your personal finances effectively requires discipline and planning, but it can also lead to greater financial security and freedom in the long run. By following the guidelines outlined above and finding the approaches that work best for you, you can work towards achieving your financial goals and enjoy the peace of mind that comes with being in control of your finances, especially when it comes to maneuvering checking accounts. 


Here to Help, 

Your Financially Fit team


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