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Managing your finances doesn't have to be scary or overwhelming. It's all about making informed choices and understanding your financial habits — both good and bad. The first step is creating a budget that works for you. So today we'll talk about one of the most important aspects of budgeting — knowing what accounts you should have and a ballpark of how much you should keep in them.
Let's dive into how much to keep in your checking account vs. savings account:
How much money to keep in your checking account
Covering the Basics
First things first, your checking account is your go-to for everyday spending. Think rent or mortgage, utilities, groceries, and your daily commute. So, step one: add up all those monthly must-pays. Don't forget Netflix or your coffee habits! Pro-tip: automate your payday and bill due dates. That way you'll avoid missed payments and late fees. It's easier to track your expenses with online banking!
After you calculate your total monthly spend on the basics, it's a good idea to keep at least one to two months of those expenses in your account at all times. This ensures you won't go over and risk a negative balance or incur fees.
Are you the type that has a hard time saying no to Sunday brunch? Or are you cautious with your spending and treat yourself only on special occasions? Knowing — truly knowing — your financial habits is important to determining how much to keep in your account and helping you stick to a budget. A good rule of thumb is to stick to 30% of your income on things that make you happy.
How much money to keep in your savings account
Be Prepared for an Emergency
Life's full of surprises – some good, some not-so-good. That's where the emergency fund comes in. It's your financial safety net for unexpected things like car trouble or medical bills. While most of it can live in a separate savings account, it's smart to keep a little in your checking account for instant access. Experts recommend keeping at least three to six months' worth of living expenses in your savings account. This will give you a financial cushion in case you lose your job or have other unexpected expenses.
What goals are on your list? If you're saving up for a short-term goal, like a vacation or the latest iPhone, you should consider keeping separate accounts. Whether that's using checking for your short-term and savings for long-term goals, or keeping multiple savings accounts, keeping your finances separate will keep you monitoring and tracking your goals better. We recommend trying to put 20% of your income towards your savings goals.
In the end, there's no one-size-fits-all answer to the perfect account balance, it's about what works for you and your financial goals. Just remember to evaluate your budget and goals often so you can stay on track!
A personal banker from FNBO can help get started by opening a checking or savings account with competitive interest rates and easy access to your funds. Stop into your local FNBO branch or give us a call for more information.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.