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When it comes to managing your finances, many people ask me, "How much should I keep in my checking account?" It's a great question because while checking accounts are convenient, they aren’t designed to grow your wealth. Here's what you need to know to make your checking account work for you.
Photo by Nataliya Vaitkevich
How Much Should You Keep in Your Checking Account?
In short, you want to keep enough money in your checking account to cover emergencies and everyday expenses. Think of it as your financial buffer—something you can easily tap into when you need quick access to cash. However, it doesn’t make sense to maintain a large balance in your checking account. Why? Most checking accounts offer little to no interest, meaning your money isn’t working for you if it just sits there. I recommend keeping about one month's worth of household expenses in your checking account. Beyond that, it's better to store your extra funds in a high-yield savings account or a money market fund where your money can earn interest and grow over time.
The Role of Checking Accounts in Your Financial Strategy
Checking accounts are the cornerstone of your day-to-day financial management. They're essential for paying bills, buying groceries, and handling other daily expenses. But here's the thing—your checking account shouldn't be your primary savings vehicle. Its purpose is liquidity, not long-term growth.
That said, a checking account can be part of your overall emergency fund strategy. It offers quick access to cash without the withdrawal limitations that some savings accounts impose. But remember, the main goal is to use it as a budgeting tool. Keep an eye on your monthly expenses and avoid overspending. Your checking account should help you stay on track with your budget, making sure you don't dip into savings or rack up unnecessary debt.
Tips to Grow Your Checking Account Balance
First and foremost, don’t feel like you need to drain your checking account each month. One of the best ways to increase your balance is by setting up automatic transfers from your paycheck or savings account directly into checking. This ensures you're always replenishing your account without even thinking about it.
Another key tip is to budget wisely and stick to it. If you underspend one month, resist the temptation to move that money elsewhere—let it accumulate in your checking account. Over time, that extra cash can add up and serve as a cushion for future expenses.
Finally, look for checking accounts that offer interest. Yes, they do exist! Just be aware of any minimum balance requirements, as some banks charge fees if you don’t meet them. This way, you can enjoy the convenience of a checking account while earning a little extra on your balance.
In summary, a well-managed checking account is a crucial part of your financial health. It gives you easy access to funds for everyday needs while helping you stay disciplined with your budget. Just remember, keeping too much in your checking account isn’t the best strategy for growing your wealth. Keep your balance in check, and put your extra funds to work elsewhere.
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About the Author:
David Peters, CPA, CFP, ChFC, CLU, CPCU, CGMA, is the Founder and Owner of Peters Professional Education (petersprofessionaleducation.com) and Peters Tax Preparation & Consulting, PC. David Peters is also registered with the U.S. Securities and Exchange Commission (SEC) as an Investment Advisor Representative (IAR) with Peters Financial LLC. He regularly teaches courses in accounting, finance, insurance, financial planning, and ethics throughout the United States, and regularly contributes regularly to various professional publications, including NCACPA’s Interim Report, SCACPA’s CPA Report, and VSCPA’s Disclosures.
Required Disclosure:
The content presented above is for informational purposes only, is general in nature, and is not intended to and should not be relied upon or construed as financial, investment, or estate planning advice. This does not constitute an offer to sell or a solicitation to buy any security, investment or planning product. Past performance is not indicative of future results. All investments involve risk, including the possible loss of principal. Please consult with a financial advisor to assess your individual situation.
Financial and investment advisory services offered through Peters Financial LLC. Brokerage and custodial services offered through Charles Schwab Co. Inc., member FINRA and SIPC. Peters Financial LLC and Charles Schwab Co. Inc. are not affiliated. David Peters also offers tax services through Peters Tax Preparation & Consulting, PC. Peters Tax Preparation & Consulting, PC is not affiliated with Peters Financial LLC and clients or prospective clients are never obligated to use Peters Tax Preparation & Consulting, PC. as part of any financial planning or investment management services offered by Peters Financial LLC.
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