January 2, 2007
How Much Money Should You Have In Checking?
Do you know how much money you should really have in your checking account? There are many answers to this question because it’s really about personal preference, but there is a financially correct answer to this question. Here is how your account should look like if you don’t have a huge amount of expenses.
Checking account- No more than $100
Savings account that is directly linked to your checking- No more than $1000
High yield savings account that indirectly linked to your checking- The rest of the money
*eFIPO’s Rule* Try to get all your expenses1 moved to the same week as your rent or mortgage payment. This is just for simplicity sake. You could also have them split up by paying your mortgage/rent the first week of the month then paying for your expenses the third week of the month. When you receive the bills for your monthly expenses, transfer the money from your high yield savings account to your checking account and pay your bills online.
If you use credit cards correctly this will be an extremely valuable tool. Paying for things without your own money, and receiving benefits2 by paying off the credit card at the end of month is incredible.
You are actually losing money if you have all your funds sitting in your checking account. Here are the reasons why:
1. You aren’t making interest on your account. If you’re making interest on your account it’s no more than .5% which is nothing. Having most of your money in a high interest savings account is the way to go.
2. Time value of money. I know this doesn’t seem like a huge problem on a month to month basis, but it still counts.
3. You aren’t increasing your FICO. Having a lower credit score will increase your fixed expenses later on in life. So get with the program and learn how to use credit cards wisely.
4. Your missing out on some good rewards. I get 3% back on gasoline, food, groceries and receive 1% back on everything else. Not a bad deal. It’s free so why not take full advantage of it.
1Credit Cards, utilities, ect…
2Cash back, rewards, and of course an increase in your FICO
