Get your mind out of the gutter. I am talking about cushioning your bank accounts!!!
Do you routinely leave a little extra in your account, for those just in case moment? Does the thought of a ZERO balance terrify you? Or do you drain your account to the bare bones, and let it all ride?
This has been a subject of discussion around our house lately. It started with our "extra" money in our checking account last week. If you remember, I had about $700 left in the account, with a week to go in the month. Very odd. Everything (minus one bill) was paid. I was sure that I screwed something up. I put $300 in our savings account as a "just in case" and left the $400 for the week for gas, groceries, co-pays, etc. And to date....we still have money in there!
We rarely have extra money in our checking account. RARELY. If anything, it is the opposite, where I might have to float some money from our savings account to our checking account for a few days until we get paid. So having a cushion was a treat.
Which brings us to our "savings" account. This account really is a joke. It has sort of been the "just in case I screw up our budget" account. We deposit $75 a paycheck in there, and in the ideal world, we would never touch it. But we do. MUCH less frequently than we used to, but sometimes (like I took money from there when I went to my mom's). Right now, it has about $650 in there (plus my $300 I am holding).
Before you get all wiggy on me about emergencies.....we have a separate account from a credit union that is our emergency fund. Per Dave Ramsey, you should have $1000 for emergency fund. Well, we have about $1450. And $23 gets added every month.
$23??? Huh???
Our car payment is an auto debit, and we rounded up for the automatic deposit from G-man's pay. Hence, the weird number.
*We are weird......I know.
If you add all the cushions together, you have about $1300 this month....$1000 if you take out the beloved $300 from last week. Dave Ramsey would say take that and use it in your snowball. It isn't doing any good sitting in the account.
If used in the snowball....basically it would wipe out my Student Loan 1 that is the current snowball victim. It could also pay 1/3 of CC3 which is the highest current interest rate card (again, this isn't counting the $300 which is earmarked to pay off CC1, which is the actual highest rate card).
Part of me really wants to do it. Really. But I can't.
I am convinced that as soon as I do it, something will break with the car, or the house, or whatever. And then I will have to drain our real emergency account. And what if bad things keep happening and I can't build the emergency fund back up? Then we have no liquidity.
Should everything be budgeted for? Yep. Is it? Nope.
Like the cars. We do have a "car fund" for maintenance, repairs, etc. But it isn't enough and I know it. Right now it has $75, and we add $15 a paycheck. It isn't much, but it is more than we were doing. And it came in handy when I had to get new tires and we didn't have to put it on a CC. But if a major repair was needed....$75 won't get us far.
So what do you do? Do you leave a cushion in your account? Do you think I am silly and overanalyze this?
Our "cushion" is our savings account, which is linked to our checking as the ODP. Do you have that option with yours?
ReplyDeleteWe zero out our checking every month. By that I mean that what is left goes either towards the debt snowball or the savings. Right now it's savings. When we were hot and heavy with our debt eradication, I budgeted how much w/go toward debt that month and take it out of the checking "on paper" -- mid-month I transferred over 50% of it to the debt... And at the end of the month if we didn't have any surprises (we usually did) I transferred the rest. I allowed this "cushion" in addition to our $1k emergency as per DR.
This gets addicting! To challenge yourself to meet your goal every month, and watch those debt numbers fall. Right now we are bulking up our cash savings for "in case" with the house sale... It's not nearly as fun as having a specific number in mind. We're not doing as well on our spending, either.
I would keep the cushion until the next paycheck comes, then immediately put that cushion towards debt. Start each month from scratch in the checking account.
Yep, our savings acct is our ODP.
ReplyDeleteChecking account...this is the first time I a long time there was anything extra. We always start from zero.
If I read Dave right, I should take the savings acct (the ODP acct) and the extra $450 from our emergency fund account (which would still leave 1k in there) and pay down debt. I just can't seem to do it! Even if I just took the $450....I still just feel like the shoe will drop as soon as I do it.
And that is what the Emergency Fund is for. It you don't want to apply the whole $450 to the snowball, then only apply a portion of it. I only wish I had extra. I am just making minimums right now until I get my $1000 saved.
ReplyDeletewhy is student loan 1 the current victim? Doesn't DR say to pay off the smallest balance first? You have others that have smaller balances than that, right? Allow yourself some success and pay off the CC1. that would feel so good to get that number off the left side of your blog! :) You're doing great!
ReplyDeleteWith a post title like that, what did you expect me to think. :P
ReplyDeleteI have a balance of $0 in the savings account right now, since most extra money gets used on paying down debt or investing.
The chequings on the other hand I try to keep at least $2000 in there and preferably stay closer to $3000, since I get charged bank fees if I keep less than that. In the new year I will have to accumulate to about $6000-$8000 in cash if I want a decent-sized emergency fund.
@Rhitter - Yes, that is what the emergency fund is for, but I am so concerned that if we have to drain that for something (say a major car repair), we will have a really hard time building it back up.
ReplyDelete@Jadell - this is where DR and I differ a bit. Hospital bill was our very first victim. And now Student loan 1, because of the emotional ties that these loans have over us. Student loan 1 is technically in my father's name, with me as a co-borrower; it originated in 1992 when I was 17. I just want it gone!!! Once that is gone, we will be doing the snowball in interest rate order.
@Invest It - C'mon...you know you love the title!!!
@Jadell....forgot....The $300 is on CC1 is being paid off on Monday, so that isn't an issue.
ReplyDeleteThe title made me LAUGH! THanks for that. I understand wanting to have a bigger cushion. Whether you call it a cushion in your checking account or just have a larger emergency fund, it's something that can help you sleep at night. Dave Ramsey didn't write the gospel when he wrote TMM. It's OK if you want to keep some cushion in your checking! Or make your e-fund larger. I'd apply the will this help me sleep at night test and see where that gets me. xoxo
ReplyDelete@Misty...you and DR might not differ on it like you think. That student loan that is in your dad's name, is basically like a loan from your dad. I have heard him numerous times tell people to pay family off first becuase thanksgiving dinner taste different when you are in debt to family. The only thing I've heard that trumps family debt is IRS debt.
ReplyDelete@Dogfood Provider - You are right...basically I have a larger emergency fund. And it does help me sleep at night. :)
ReplyDelete@Jeff - Never really thought of it as a loan from my dad. Good point! I just want it GONE!!
Yes, I do have cushion for the pushin', whichever interpretation you choose to use for that, haha.
ReplyDeleteI leave about $100 in the checking account so I don't overdraw, which just doesn't happen these days since I'm using all cash for almost all transactions anymore. It does give me the back up just in case, though.
@Saved Quarter - I gots me some cushion too. Hee hee. I wish we had a bigger cushion in our checking acct.....someday!
ReplyDeleteMysti,
ReplyDeleteWhat about a back up cushion plan? We have our Emergency Fund per DR + our "oh crap" account that is linked to our checking. The "oh crap" account moves back and forth between our debit/checking accounts as needed to keep us from overdrafting (refuse to pay a fee to use my own $$) or for those times when a pseudo-emergency comes up.... because there are always those "I totally forgot that one" times (for us, its usually kid/school related- class trip is this month, but I had planned it for next month - those sorts of things...) We are on a cash only basis and don't use credit cards AT ALL, so this money helps cover the float or helps out like last August Target had toys on sale for 75% clearance. I had planned to do shopping in November, but with the deals - and so many things that were originally on our list - I used our "oh crap" $$ in a good way, finished our xmas sinking fun in December and repaid our "oh crap" fund. This also came in very handy when DH wrote a check to the DMV for license plates and forgot to write it down!
I understand your struggle... there is a fine line between hoarding what we have and using it to pay down debt.... keep up the good work!