Is it to personal to ask how much is in your checking account? Are you holding your breath until payday worried that you might over draft? Maybe you read that and laugh because your checking account is overflowing?
Is that a good thing?
Most would respond of course it is! Why would someone not want to have tons of cash at their disposal? Personally, I try to have as little as I can in my personal checking account.
Why exactly? I like to feel the hurt and to stay hungry. If I have extra money sitting in my checking account I will find a way to waste it. Take this with a grain of salt as I am not as frugal as others in the personal finance world.
How I Allocate Money
My money is already spoken for before it hits my account. Since I am married every year my wife and I decide how we will allocate our money based on our priorities. Regardless of how much we earn we make priorities on how money will FLOW.
Before the year starts we set ambitious goals. Goals that most people would define as unreasonable. In my opinion I think goals are only worth making if they are extremely difficult to achieve.
Once our goals are defined we allocate our cashflows. In the beginning of your journey I would recommend doing this using percentages. As more money flows you can switch to dollar amounts as I find it more motivating.
This split could look something like the example below.
Income All Sources Monthly Flow
- 401(k) 20%
- HSA 5%
- IRA 10%
- Rental Property Down Payment 5%
- Basic Bills (Life needs) 15%
- Mortgage/Rent 25%
- Big Purchase Splurge Fund (Car, vacations, etc.) 10%
- Small Spending Fund (Dinners, entertainment, clothing, etc.) 10%
Wrapping Back To The Checking Account
If you are intentional with your money and following the example above, you will only have 10% of your income hit your checking account. The rest of your money is already spoken for.
Most people are not comfortable with this idea. Psychologically it feels better to have a bigger balance in our checking accounts from month to month. Just in case something comes up that you want to be able to pay for.
This is counterproductive to long term goals. Fight your urge to think in the short term and trust the plan that you originally laid out. Force your money to flow towards your priorities.
If you set up a system like the one above, you can scale as your income changes. Life will bring prosperous and challenging times, but you always need to be focused on your long-term goals.
That is why you should challenge yourself to have lower amounts at your disposal every month.
If you are naturally a spender that is okay. Most people do not control their cash flow but instead let their external circumstances control them.
Take the time to go through last months bank statement to track your spending. Look at everything you spent including debit, credit or cash.
Break this spending out by category and see where your money is going. If you are not willing to take this step you are not ready to embrace change.
Once you get a feel for where your money is going see if you could live off less. Did you really need to go to the bars four times in a month? Get your nails done? Eat out five times a week?
Decide what is important to you. Everyone is different and that is okay, be honest with yourself and decide what is worth keeping. If its everything party on! Just realize you will not reach any of your long-term goals unless you up your income.
The reality is at any income level we can find ways to waste money. We must learn to set a budget and only buy what is important to us.
That is where keeping a low checking account balance comes into play! If you have a low checking account balance that means you are serious about your other categories, exciting!
You will see those areas of your life that are important to you grow with this strategy! It is up to you to set the level of intensity to match whatever big goals you my have.
What Are Your Thoughts?
- How much do you have in your checking account?
- How does your cash FLOW?
- What are the big categories you are focused on in your life right now?