Tuesday Tip

>> Tuesday, September 23, 2008

It's always nice to have a cushion in your checking account, especially if your budget is tight. An unfortunate subtraction/addition error on your part can lead to very unwanted insufficient fund fees. Having a cushion can keep you from bouncing a check if you've made a mistake and think there is more money in your account than there actually is. But where do you come up with the money for a cushion when there is little to nothing left over at the end of the month? I do it by rounding. Whenever I write a check or use my debit card, I round up the amount I deduct from my checking balance. For example, if I spend $41.25 at the grocery store and use my debit card to pay, instead of subtracting $41.25 from my checking account I subtract $42. That adds 75 cents to my checking account cushion. And when I make a deposit I round down. So instead of saying the deposit was $259.71 I'll enter it as $259. Over time this really adds up. You can track this however you like. If you want to be aware of every single penny, write the amount down in a separate column and add it up at the end of the week/month when you balance your checkbook. I don't pay too much attention to mine. I just know when I balance my checkbook I always have more than what I should have. Earlier this year when we were having a really tight month, I balanced the account and was able to use some of the extra money for something we needed while still keeping a couple of hundred dollars in the account as a cushion. Decide on how much cushion you'd like to leave in the account and you can periodically transfer any excess to your savings account.

Some banks offer accounts that use this same basic principle but they transfer all the money into a savings account. I prefer my method since it helps build up the cushion in your checking account and the excess can still be used for savings. Do you keep a cushion in your checking account? If so, share your ideas for building/keeping a nice cushion in your account.

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