One of my favorite bloggers, Mrs. Micah, has a great collective post today. She's asked bloggers and readers to submit the best PF idea we've come across this year.
Over the last couple of years a major bank has run television ads stating that they will round up your checking account withdrawal amounts and put that in your savings account. I guess it's supposed to be a way to help people save money. Of course, the bank charges a fee for doing this.
I was intrigued by this idea. But, I didn't want to pay a fee, and I really didn't want the money to go into my savings account. What I was looking for was more along the lines of a credit line, but you very well know that more credit was the absolute last thing that I needed. I was looking for a way to make sure I always had at least $100 in my checking account. So, I made this idea my own. Whenever I make a withdrawal or write a check, I round up in my check register. So if the check was $10.01, I enter $11.00 in my register. Also, when I make a deposit, I round down. If the deposit is $90.52, I round it down to $90. This way I always have a small "cushion" in my checking account. It's come in handy especially when I used to make frequent ATM withdrawals.
Friday, December 14, 2007
Best Personal Finance Idea of the Year
Subscribe to:
Post Comments (Atom)
7 comments:
Thanks so much for responding! :) I've added you to my post.
That is a good idea! A while ago I went to the opening balance entry in my Quicken data and adjusted it DOWN by $200 so I would have a cushion. Problem is, I know that I did that. :)
Your idea sounds like a good way to 'hide' the extra.
Eden, I know what you mean. But for some reason it seems to work. Quirky, I guess.
My mom always did the same thing and I can remember wondering why she did it. But now it makes so much sense!
Doesn't this have effect of having a perpetually unbalanced account? And make it easier to miss something that is wrong? I don't quite get the purpose of this. Accuracy in financial accounting is a virtue.
Like eden suggested, maybe arbitrarily marking your account down $100 or $200 is good but this just seems confusing.
Like I said, it's quirky, but it works for me. I'm very, very old school too. I still use a check register. I'm new wave in that I use online banking and I check my balance daily.
For some people a trick like this can work because it is working on the intention of always keeping a cushion in their checking account. I think if this really works for someone, that's great and they should keep doing it.
However, from my perspective, it's just clouding the windshield. Far better in the long run than obscuring the amount of money you have available is knowing actually how much you have available. Then, if you want a cash cushion, keep a cash cushion in your account. Personally, I only spend the amount in my checking account that is above $700. So if I see the balance is going to go below that, I go into "alert" mode.
Combined with keeping a month's worth of expenses in my checking account at all times, this makes it so I don't have to time bill payments with my pay. I can go a month without depositing income into my checking account, and still pay all the bills, and if I do so my checking account won't drop below $700.
It's far better I think to retrain yourself to *not spend your cushion* than to trick yourself with accounting maneuvres.
That being said, there is a place for financial sleight-of-hand if you want to maximize the use of your money and your frugality.
As a corollary to everything I've written above, I make it a point to never let my checking balance get significantly *above* one month's expenses plus $700.
This is because seeing a larger balance on the account can give me a false sense of "plenty" and encourage unnecessary spending. Having a smaller balance (for me, around $2100 at the most) in my checking account encourages me to stick to my budget guns. This is because I have trained myself that $1100 in my account means that I am close to the bottom of my available spendind, and $800 is only $100 above my desired account minimum. If I left larger balances to accumulate, it would subvert this psychological budget trigger mechanism.
So what I do is make a point of drawing off all excess cash (savings) from my checking account once it gets above $2100. This goes to a separate account that I don't look at all the time and earns interest. Drawing off the savings/excess cash from my checking account causes also a appearance or environment of somewhat fictional enforced/scarcity that comes in handy in keeping me "lean and hungry" when it comes to monthly spending.
--my 2 cents
Post a Comment