When you have more than enough funds in your checking account, you stay ahead of any maintenance or overdraft fees.
On the flip side, having more than enough in the account could also open pandora's box to spending more money and losing control of your budget, just because the money is there. Plus, it could cause you to miss out on growing those extra funds in a high-yield savings account or a Certificate of Deposit (CD).
That's the million-dollar question! Unfortunately, that amount isn’t the same for every account holder. Everyone’s living expenses are different, and each financial institution's fees aren’t the same.
If you're looking for the magic amount to have - this is an individual determination. Typically, your household income influences the amount in your account. According to a 2019 NerdWallet survey conducted online by Harris Poll the average American's checking account balance was about $2,900.
QUICK TIP: If possible keep at least one or two months worth of living expenses in your checking account. On top of that keep an extra 30% to cover fees just to be safe. |
But no worries - you're on a path to mastering your spending, so we’ll uncover how much you should keep and where you should move the rest of your money so you’re benefiting at the end of the day.
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In a recent article, How to Get Back on Track With My Finances?, I share the tips & tricks of re-tracking your spending, even when you have a budget in place. If you've tracked your expenses before and need to know where you went wrong or you're just ready to reset your finances and know where your expenses go each month - the steps in the article will help you get there. But if you are doing this all for the first time and need to track your expenses, it’s time to understand what you currently spend so you have an idea of how much you'll eventually need in your checking account.
There are a few tools to help you keep track of your spending:
QUICK TIP: To help keep your tracking top of mind, consider setting up account and transactional alerts. Then, every time you get a notification or email about your spending, you can track it! |
Now that you've recorded your spending and know all that comes out of your account daily, it’s time to think about the important recurring expenses - your bills and debt. This includes rent, mortgage, utilities, insurance, car payments, and credit card payments. Psst… don’t forget about allllll of those streaming services, too.
Have those funds available in your account first because they ‘re the important expenses. Plus counting those expenses will ensure you don’t miss a payment (which will affect your credit score.) A good rule of thumb is to try to keep 1 - 2 month’s worth of bills in your checking account.
QUICK TIP: When keeping enough for bills like credit card bills, it'll help to know how much you spend on your credit card each month and track those expenses. If you need help - I got you. Here are steps that'll help. |
When determining how much to have in your checking account you want to include your other day-to-day expenses, too. This includes groceries, dining out, clothing and other discretionary costs (like travel), entertainment, hobby’s, and more. Reserve at least a one to two month’s worth of those expenses in your checking account, too.
Some financial institutions charge fees for simply having a checking account (I talk about that long list of potential fees in Understanding Checking Accounts. ) Monthly service fees and overdraft fees are the popular charges account holders want to be prepared for:
QUICK TIP: Financial institutions may waive the monthly service fee if you meet the financial institutions minimum balance amount. For example, if you have $1,500 in your checking account and $1,500 is the minimum balance to waive the fee, then you won't incur a monthly service fee. |
It's great to do what you can to avoid checking account fees but in case you can't escape the charge, try to keep an extra $100 or more to be in the clear. This extra will serve as your buffer to be safe from going negative in your checking account. If you want to learn the exact costs that are associated with your checking account, reach your financial institution.
It’s important to remember your expenses month to month will more than likely change, so continue monitoring your checking account often to ensure you have enough for your spending needs.
Psst… You can control your spending when tracking your expenses by having a budgeting plan in place. Here are some helpful tips to building a budget.
If you find yourself having more money in your checking account outside of what you truly need, it's possible you'll be tempted to spend it and could blow your budget. A great way to avoid that temptation is by moving the extra cash elsewhere. It could be in a savings account, retirement account, or another checking account... you have options!
My first suggestion is to place the extra cash in a regular savings account. It’s an account that's meant to save your money, not spend it (which is why you should never use your Savings Account for daily spending). Here are a few more options available:
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Even though the exact dollar amount in your checking account will not be the same for everyone, the steps to determine that amount are. To help you keep track, use mobile apps like Goodbudget or the Mint App to help. And, don't forget to set up alerts so you're in the know with all that's happening in your checking account in case you spend more than you originally planned for!
If you're still struggling with your checking account and feel like you're spending more than you want, its time rework your budget and get back on track with your finances. Follow the steps and you'll feel good about the direction you're headed and see an improvement with your overall spending. Let's whip those finances into shape!
Balancing your checking account is another way to stay in control of your finances. You can also do this by learning how to budget. Check out The Basics of Building Your Budget to get started. We also have a free and handy Smart Budgeting Guide.