Why do I keep a $ 1,000 cushion in my bank account
I don’t like to keep a lot of money in my checking account. I have automated much of my financial life and prefer to transfer money quickly to different savings accounts for specific purposes. I prefer to have most of my money in high yield savings accounts where I can earn interest and am less tempted to spend it until I need it for a specific purpose.
But, despite my loathing for maintaining a large checking account balance, I always make sure to keep $ 1,000 beyond the amount I think I need. Here’s why.
The $ 1,000 pillow can save me from financial disaster
There is a simple reason for the extra $ 1,000 in my checking account: I never want to overdraft.
Overdrafting occurs when you try to withdraw more money from your bank account than there is, usually by writing a check or using your debit when you don’t have enough to cover it.
My bank charges high fees for overdrafts. And if my balance turns negative because the bank authorized a purchase I didn’t have the money for, I would also have to pay a fee for each day my account was less than $ 0. Although my bank has overdraft protection – which allows money to be transferred from another account or from a credit card to cover an overdraft – this service is also chargeable.
I don’t want to pay a fortune in fees because I have too little money in my bank account. Having an additional $ 1,000 in my account means that I would have to miscalculate my available funds from a lot of overdraft.
It is quite possible to avoid overdrafts without a buffer on your account if you regularly check your balance, keep track of overdue checks, and never write a check or use a debit card unless you are certain. to have the money to cover it.
I try to do these things, but I also know that I am not perfect. I forgot about payments that debit my account every few months, for example, and wrote checks from a shared account without notifying my husband (and vice versa).
My $ 1,000 cushion ensures that these kinds of inattentive mistakes aren’t a big deal. This has saved us many times from ending up with overdraft fees and a negative balance, and I highly recommend it where possible.
If you can’t invest $ 1,000 more, then something more, maybe a hundred dollars, could make the difference for you. The key is to avoid keeping your account balance so low that a minor misstep leads to a financial hole that is difficult to get out of.