Financial experts have weighed in on the ideal sum of money Americans should keep in their checking accounts. While many individuals typically keep only a few hundred dollars, concerns about overdraft fees from mismanaged payments prompt a re-evaluation of this practice.
Gregory Guenther, a chartered retirement planning counselor based in New Jersey, suggests that individuals should keep sufficient funds in their checking accounts to cover a week or two of bills. This recommendation seeks to lower all the stress that goes along with surprise costs and payment must-haves. Yet financial planners almost universally advise a much more conservative approach. They encourage customers to always have enough money in their account to pay at least one billing cycle of their expenses.
“I encourage people to keep a month of expenses in their checking account, especially if they don’t closely monitor their cash flow,” said Jessica Goedtel, a certified financial planner. She highlighted the vulnerability of checking accounts, noting that “checking accounts often lack the protections of credit cards,” making it crucial for individuals to monitor their balances carefully.
Goedtel agreed on the need to have at least a little cushion in one’s checking account for financial security. This buffer allows people to manage everyday costs without the anxiety of a daily bank account balance check. Guenther noted that “the sweet spot is personal, but it should let you live without double-checking your balance before buying groceries.”
Catherine Valega suggests people have enough to cover three to six months’ worth of majority of major expenses. Her recommendation would be to leave this funding in a separate, very liquid savings account. This strategy helps build in space for surprise costs. It protects you against underestimating your regular cash flow needs and over-drafting from your checking account.
An emergency fund is key to any financial plan. It gives people the flexibility to pay for those occasional unexpected expenses without throwing their monthly budget out of whack. Most consumers will be able to get in the habit of building up a fund that matches six months’ worth of expenses eventually. This push comes with historic fiscal relief.
Nathanael Farrelly cashed out of his nursing agency at $12.5M and retired for good at only 28 years old. He highlights the power of strategic financial planning to build extreme wealth and freedom.