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Should you keep a cushion in your checking account?

by Karen on September 29, 2009

nickels and dimesA little over a year ago, we moved most of our money into our savings account. We didn’t want to keep very much money in our checking aside from what we need to cover our monthly expenses.

I decided to leave a $1,000 cushion in our checking account. The idea was that $1,000 would serve as the zero mark. It would just sit in the account, unspent, serving as a cushion so we’d never overdraw our account in the event of a miscalculation.

Fast forward 14 months. Each month we went just a little over budget. $50 one month, $25 the next month, $100 the month after that. The motivation to stay completely on target wasn’t as strong because there was extra money there. Now, our $1,000 cushion is gone. Even though we have a pretty health savings account, it feels a lot like living paycheck to paycheck.

I’ve considered putting a little money aside each month in the budget to rebuild our cushion, but here’s the thing: I don’t know if I want a cushion.

Even though I don’t like the feeling of an empty checking account at the end of the month, we’re less tempted to overspend a little here and a little there when we’re cutting it so close. But it still feels like living on the edge. One error and we could be hit with overdraft fees (our bank hasn’t yet allowed opt-in and opt-out for overdrafts like Chase and Bank of America).

I feel like we’re stuck between two crappy choices: the risk of overspending vs. the risk of overdrafting.

I’ve decided to open a new savings account with my bank (our main savings is with ING) and put $100 or $200 in it to reduce the risk of steep charges in the even of a miscalculation. It’s unlikely since I watch our spending so closely, but I don’t like worrying about it.

The thing is, our dwindling cushion wasn’t due to error. It was due to poor judgment. As long as we had “extra” money in our account, we were more likely to make poor choices. As I said last week, we don’t make big purchases, but we nickel and dime accounts to death.

How do you handle this dilemma? Do you keep a cushion in your checking account, or do you move all of your extra money to savings to protect it?

Photo by heypaul

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Using ING as our primary bank — Living Well on Less
September 30, 2009 at 1:17 pm

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1 Kacie September 29, 2009 at 9:46 am

I think your cushion, if you have one, needs to be much smaller than $1,000. The $100 or $200 sounds good.

The $1,000 was there to avoid a what, $30 overdraft?

We don’t have a cushion, but once we get fully migrated to our new bank, we’ll have a little protection. If we overdraw our checking, the bank will automatically tap our linked savings accounts for no fee. It’ll help us avoid overdraft fees, but it’ll also (hopefully) force us to pay close attention to our spending, especially as the account balance dips.
.-= Kacie´s last blog ..G-20 a big deal for Pittsburgh =-.

2 eastTXmom September 29, 2009 at 10:16 am

Your post brings back memories of my mom “cushioning” her check account. I didn’t learn of this until I was much older and would give my mom a hard time about how she would always tell me “we don’t have enough money to cover that.” I can look back now and smile at my mom’s frugal ways and how they’ve rubbed off on me. I keep an extra $100 in our checking account, but I don’t look at it as a cushion as much as ‘things happen’.

Just remind yourself you’re learning what works best for you and your hubby and mistakes are permitted.

Take care.

3 Mrs. Money September 29, 2009 at 11:27 am

We have a line of credit attached to our checking account (it doesn’t show up on our credit report) in case of overdrafts. We’ve never used it but it’s there for peace of mind. Like you, if I have money, I’m more likely to spend. BUT when I get towards payday and I have like $200 I kinda freak out. I have what’s called a “secret” account that I keep some money in as a slush fund/mortgage acct. I think you’ve got a great idea though.
.-= Mrs. Money´s last blog ..Stroll Through my Garden =-.

4 Sharon September 30, 2009 at 8:20 am

Actually I trick myself into saving for a cushion in my checking account. I don’t count the coins…for instance if I have a check amount of $4.07, I subtract $5.00 from the balance. Because I have online banking, it’s easy to balance the account. Right now, I have $120.00 in “change” that is not reflected in my balance, thus a cushion. I know it’s there, but I don’t spend it.
.-= Sharon´s last blog ..Not Buying It =-.

5 FrugalChick September 30, 2009 at 8:39 am

I find I end up in the same overspending boat if I leave a cushion in the checking account. So I usually move everything to savings to protect it. BUT that can make spontaneity difficult to achieve, like if a birthday dinner comes up and you need to transfer a few bucks over. On the other hand, having no money in your checking account will sure keep those nasty little impulse buys at bay.
.-= FrugalChick´s last blog ..Beauty =-.

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