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Always keep $100 in your checking account

by J. Money on Monday, November 1, 2010

old $100 bill
Hidey ho my financial friends! Today I’d like to talk about checking accounts. In particular, PADDING your accounts so you don’t make a jack ass out of yourself – something I was pretty good at back in the day ;)

Example #1: Bringing my 2-week supply of groceries to the check out lane, only to find out I’m shy $5 bucks! That’s the worst  – having 10 people behind you in line watch as your card bounces and you’re forced to either load it all back in your cart, or run away with your hands over your head. I think I’ve done that at least 5-6 times that I can remember.   Which is yet another reason I love my credit card more ;)  (amazingly you never run out of money! haha…)

Example #2: Hitting up the ATM in the middle of your 10 year reunion and realizing you don’t have the cash to pay for that cab ride home!  And then having to pretend something is wrong w/ the machine when all your old friends and ex’s wonder why your hands are empty.  NOT FUN!  Especially since it’ll be another 10 years until you can convince them you’re neither an idiot nor a cheapskate ;)

And I can go on and on and on… when you’re budgeting down to $0.00 every month you’re just asking for trouble! Luckily though, there’s an easy fix to this.  In fact there’s two:

  1. Link your checking account to your savings account (and if you don’t have a savings account link it to your credit card – although fair warning that going that route may induce penalty fees and/or nausea).  This way before you even realize it you’ll have the cash to finish whatever transaction you’re currently on! And most banks offer this nowadays.  If they don’t, you need to change banks.
  2. ALWAYS keep at LEAST $100 in your checking account. I can’t stress enough how important it is to have a cushion in there – and not just to avoid embarrassment either.  There have been sooooo many times where I’ve miscalculated the balance or forgotten that a check or two hasn’t cashed.  And $100 is a nice amount that usually saves you from trouble, although not always (like with larger amounts). Even the best budgeters mess up when you don’t allow for some leeway.

It’s been 3 years since doing this and so far so good!   I think of it as a $100 savings cushion.  I could always touch it if I want, but it’s nice knowing it’s there to keep me safe :) It’s def. worth a try if you’re not doing it already – nothing bad can come of it!


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{ 35 comments… read them below or add one }

1 Kevin @ Thousandaire.com November 1, 2010 at 9:28 am

I actually keep at least $1000 extra in my checking account. I don’t track it down to the penny and since everything comes out of that account, I want to make sure I never overdraft. I’ve been down to about $100 or $200 before and it freaks me out

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2 KaseyS November 1, 2010 at 10:08 am

Solid advice J – and hilarious story about the 10 year reunion. I feel your pain.

But in #1 I hope you weren’t accidentally suggesting readers rely on their credit cards to buy necessities like groceries. That’s heading down a dangerous slope – especially if your checking account balance is already a little anemic.

Not saying it isn’t nice to have credit as a back-up. You’ve got to use something if you get denied and decided to opt out of overdraft protection. Hopefully people realize you were joking when you basically called credit cards an endless supply of money.

You were joking right?

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3 Lulu November 1, 2010 at 10:29 am

@ KaseyS. I think J meant that for those of use who use our credit cards for all purchases and pay them off. For example, I use my credit cards to pay all bills and do my grocery shopping….I use my cards for EVERYTHING!!!!! I never carry a balance on the card because I have a (complicated) system where ING sends my credit card a payment every week. So I have ING sending $900 over 4 weeks to my Discover card for example….but I only use that card to pay rent and electricity. Rent comes in at around $750 (depending on the water bill) and electricity comes in at under $100 so the card is always paid off in full every month. Even if I spend more on the card (and I don’t) it does not affect my bank because ING pushes the payments to the card, rather than the card pulling the payment. So for those of use who use our cards like this and never carry a balance what J said makes sense.

BTW my ING account is also padded…..but it does not make a difference in my case.

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4 KaseyS November 1, 2010 at 10:37 am

@Lulu – sounds like you’ve got a nice system going – but I doubt the average person is going to use a setup like that. You yourself called it “complicated.”

All I’m saying is – if you’re draining your checking account close to $0 – you need a “sexy budget” – not a credit card.

I used to use my credit card for almost everything and always paid off the balance too. But if you are living paycheck to paycheck – all it takes is a few times in a row where you can’t quite pay off the whole thing – and you get caught in a nasty cycle. Thankee Lordy I’m out of it now!

However – I really do think your setup sounds pretty sweet!

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5 Clare November 1, 2010 at 11:19 am

I have to disagree with the linking checking to savings! Un-linking them was the best thing I ever did for my savings and now I keep it all in a separate account. When savings is accessible from my debit card, some of it always gets spent. This has everything to do with willpower though.

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6 FrugalRichLife November 1, 2010 at 11:26 am

I actually have a $500 cushion due to my deep seated fear that someone will cash out a check from 10 years back or something. I actually use my credit card for a lot of purchases just to save me from the hassle, but I monitor it regularly and I pay it off at the end of the month.

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7 Karmella November 1, 2010 at 12:57 pm

I totally agree (sort of!) !!

I always keep an extra $100 in checking just in case something pops up, but I never use a debit card and if I use an ATM (once every couple of years) then I take money out of savings. I sweep money out of checking into savings regularly, so I’m not pulling from long term savings if I grab cash.

I use a credit card for almost every expense, and I do pay off at the end of the month.

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8 Kelsey November 1, 2010 at 3:15 pm

Great basic principle to remember. I need to work on this.

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9 Briana @ GBR November 1, 2010 at 4:30 pm

I think that’s a great rule of thumb. $100 is just enough to cover your butt, just in case something comes up

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10 Ninja November 1, 2010 at 5:19 pm

I too keep at least $1,000 in the checking account. If fact, right now it’s at $4,000. Gotta keep the checking account stacked to pay off my CC each month when the bill comes due :)

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11 eemusings November 1, 2010 at 6:12 pm

How funny, $100 is my cushion too! (That being said I also have a $500 free overdraft as a recent grad).

Having a CC which I use all the time means $100 is usually enough.

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12 Red November 1, 2010 at 6:26 pm

Now, I can appreciate WHY you suggest this. But I don’t keep a cushion in my account. My bills do not come out automatically (if they did, I would have a month’s cushion in the account just to avoid the constant worry). I initiate all of my transactions, so why keep a cushion? If you properly budget, you shouldn’t need one. I certainly couldn’t justify keeping $100 in my checking account while my student loans are accruing interest every day.

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13 J. Money November 1, 2010 at 7:34 pm

@ KaseyS – Yup, I use credit card for AS MUCH as I can! More cash back, easier to budget, and never have to worry about bouncing anything here or there. But that’s only because I’ve mastered it over the years and I trust myself 100% using it. I would never recommend credit card budgeting to anyone who doubts their willpower – it’s not worth the trouble as you have pointed out.

Although I will say that I still want to try for a “cash/debit card only month!” I just want to see if I can ever do it ;) It would probably kick my a$$ but would make for an interesting experience – at least for me.

Keep rockin’ everybody!

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14 Brian November 2, 2010 at 12:06 am

Definitely a great rule to live by; frequently we may forget about a restaurant tab that doesn’t include the tip yet, an automatic bill that is yet to post, etc. There is always something that may sneak up!

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15 BruceBucks November 2, 2010 at 1:54 am

Good Advice J Money! A $100 dollars is a good buffer. It is a little too close for comfort, but there is normally never a random purchase over a hundred dollars that will cause you to overdraft. That is unless you have forgotten about a monthly payment or a check. Thanks for the good thoughts.

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16 JMK November 2, 2010 at 9:32 am

We keep a $1000 minimum balance at all times. It means we never pay bank fees, and it acts as an easily accessible first $1000 of our emergency fund. I suppose it also prevents us going into overdraft, but we’ve never overdrafted in 26 years of marriage and I don’t expect we ever will. We purchase everything possible on our credit card and I pay it off weekly (yes weekly). We have our spending plan laid out through to December 2011. We are each paid every two weeks on alternating weeks, our mortgage comes our automatically every two weeks, our property taxes on the 1st, and the insurance, phone, cell and internet are all changed to the CC on the same day every month. We budget the same amount every week for groceries, and a little pocket money for coffee and miscellaneous. We also plug in a planned amount for annual expenses like vehicle licencing, summer camping fees, extra fuel for long drives to family holiday gatherings, kids BD parties, replace car tires every 3yrs, etc. Since virtually all our spending is repetative and predictable there really aren’t any surprises.

We’ve cut our expenses to the basics so that we can live on ~55% of our take home pay. This doesn’t include savings or things spend on rarely and can’t predict the timing (restaurants, clothing, household and car repairs, etc). Most weeks none of these things happen so all the excess after paying off the VISA gets swept out to our retirement accounts or an extra mortgage payment. If we had to buy new sneakers for the kids, repair the washing machine, or bought a new lamp, we simply transfer slightly less that week. When we want to take a holiday we just let the excess pile up for several weeks and then go. It’s a little unconventional but it’s a system that works for us. Because we live on way less than we earn we have a weekly opportunity to fund unexpected expenses or little splurges, but most of the time it all gets moved somewhere sensible. I find that by not budgetting for entertainment, clothing etc we don’t feel entitled – as if we’ve preapproved ourselves to spent that amount without pausing to question whether we really need it. Instead there is no planned budget for these items and anything we spend is coming out of what would otherwise be available for the Friday transfer to savings or the mortgage.

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17 Lulu November 2, 2010 at 11:42 am

@ KaseyS congrats at no longer being in the vicious cycle and living in fear of missing a payment. I put complicated on there because it might seem complicate to some people when they hear that my card is paid every week.

My system is really simple because I set up ING to mail out a payment every month on a certain date to the credit card (then picked three more dates and repeated the cycle). That only took me a few seconds and since I follow a well maintained budget I don’t have to worry about due dates or balances because everything is automated.

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18 Edward - Entry Level Dilemma November 2, 2010 at 3:00 pm

We keep one month’s worth of expenses (~$1800) in the checking account so it is available on demand in case something goes horribly worng. I’m a big fan of keeping extra funds in the checking account after I forgot a bout an outstanding check around Christmas a couple years ago and wound up with over $400 in overdraft fees by the time the dust settled.

@Lulu I’m not a fan of automating payments because it can be difficult getting off them. (A friend of the family once discovered that a company was still deducting $30/month to pay off a $300 debt five years later.)

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19 Molly On Money November 2, 2010 at 8:43 pm

I love having a pad in my checking account. I now can do bills when I want to (or when they are due) without worrying about cash flow issues. I spent years stressing about bill dates and changing them to work with my pay schedule- NO MORE!

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20 Kay Lynn @ Bucksome Boomer November 4, 2010 at 12:06 am

I keep a $100 buffer in checking but also have it linked to savings in case I really screw it up (never happens…tongue in cheek).

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21 J. Money November 6, 2010 at 11:00 pm

@Brian – Yup, and it’s the worse when it happens like 3 months after it should have been taken out (seems to happen to me a cple times a year.)
@BruceBucks – $500 would probably be safest :)
@JMK – Damn, that’s one helluva great budgeting plan! I might have to use that in a future post ;) I like how you do it weekly too – you don’t normally hear of a budget like that. And having that leftover amt. xfer out every Friday makes total sense too – I dig it. Thx for sharing!
@Lulu – Love automation! (And ING :))
@Edward – Entry Level Dilemma – Wow, $1,800 a month for expenses? that’s pretty good. Last I checked we spend like $4,500/mo…. I should re-do the numbers soon and see if we’re still around there.
@Molly On Money – Feels good too, doesn’t it :)
@Kay Lynn @ Bucksome Boomer – Yup, brilliant idea! Always good to have a backup I say.

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22 Roger, the Amateur Financier November 9, 2010 at 1:18 pm

An excellent suggestion, and one I try my best to follow. It’s always nice to have a little bit of extra money available just in case. Beyond $100, though, I try to keep most of my extra money in savings accounts or other accessible but higher yielding accounts; keeping more than that in my checking account just feels counterproductive.

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23 J. Money November 9, 2010 at 10:45 pm

yeah, that’s the down side to it…. but then again it’s usually just a matter of a few pennies here and there unless you know of a secret fund/stock that does much better! ;)

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24 Heather M. November 16, 2010 at 3:08 pm

I used to keep a $500 buffer when I was young, single and had no debt. Six years, one husband, and thousands of dollars in debt… we just don’t keep that kind of buffer anymore. Once we get our debt paid down (we’re both FINALLY working again!), then it might be a possibility, but over the last six months, we’ve been living to the penny, literally. I’d like to start with a small buffer of $50, and gradually work back up. But for now, we really need every cent to pay for bills and groceries.

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25 J. Money November 16, 2010 at 4:05 pm

awwww well hang in there! that’s great you’re both working again now! :)

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26 Chris Parsons November 30, 2010 at 1:07 pm

I keep anywhere from $1,000 – $4,000 in my checking account. My credit card bill usually comes in somewhere around $3,000 and so before I pay it I have the money for it in the account ready, and once it is paid it I still have around $1,000 left. I used to try and keep it at $1,000 but this took too much time to constantly be moving money between account (I use online savings accounts at different banks which take 2-3 days to transfer). Plus, interest rates are so low right now on savings accounts it really doesn’t make a difference.

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27 J. Money November 30, 2010 at 9:47 pm

Hah! As sad as that is… I like your system though, glad it works!

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28 D Moss July 30, 2012 at 9:33 am

Be very careful when linking your savings account to your checking account and relying on it to make up your checking account shortfalls. Banking regulations require banks to limit all savings (and Money Market accouts) to six electronic transactions per month. Go over that, and you will have some hefty excessive activity fees. .

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29 J. Money July 30, 2012 at 10:59 am

Yup! Great point for sure. I don’t know if that was in effect when I first wrote this post years ago, but I’ve def. noticed it now! :) An even better strategy altogether is to never even *need* for it to hit another account too, haha… but mistakes do happen every now and then.

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30 loopy August 17, 2012 at 12:09 pm

I love the buffer, though I guess that’s always come natural to me. I had to force myself not to put everything in savings because then that made it too easy to make excuses to take money out of savings.

Now I have a certain amount that I put into savings each pay period, and I leave the overflow in checking. If it gets over $700 in checking, I’ll put some into savings at that point. I only feel comfortable with the amount to cover my mortgage payment, and no less; mainly because I have an ING account for savings and it takes 2 business days (4 days with the weekend, 5 if there’s a following holiday) to reach my lender, so I prefer to have at least that amount readily available at my brick and mortar bank.

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31 J. Money August 21, 2012 at 8:19 am

Not a bad idea at all. It’s great that you know yourself well ;)

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32 Lauren Gill February 25, 2013 at 9:11 am

I like $100 cushion idea. I’ve heard you should have at least a $500 cushion in your checking account from a Dave Ramsey counselor before. That’s way too much for me at this time. $100 is definitely doable. I’ll have to work on that going forward.

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33 J. Money February 25, 2013 at 3:49 pm

$500 would def. make you feel more comfortable, I agree. But you do what you can, when you can! $100 is a great start :)

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34 Nick from BayCrazy March 10, 2013 at 8:09 pm

Lmao! @ ‘pretending something is wrong with the machine’.

Definitely a good rule to keep a certain amount in your account, perhaps even a small amount in every account (although I don’t know why some people have so many, I think it’s perhaps better to keep it manageable with just one or two?), which is all kind of in accordance to the ‘life beneath your means’ mentality. Which, is good common sense…

Though not necessarily… in fact, very hard to stick by. Despite it being obviously beneficial.

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35 J. Money March 11, 2013 at 2:48 pm

Yeah, I’ve since paired down all my accounts into just a couple – Feels MUCH better now!

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