Remember the old story about the princess and the pea?
Here’s a 30-second recap:
A prince decides he’d like to take a princess for a wife, but he’s having trouble determining whether the ladies he meets are actually princesses. (What’s the princess version of a “frog”? I’m going to say a mouse. I think the prince was kissing a lot of mice and was getting tired of it.)
One day, our bona fide princess stumbles into the prince’s home and has to stay the night. To test her “sensitivity” (because somehow sensitivity implies royal-ness–or something), the prince’s mom decides to place a pea under the princess’ bedding. The prince’s mother covers up that pea with 20 mattresses and 20 feather beds.
The next morning, the prince’s mom asks how the princess slept. The princess replies that she had a TERRIBLE night of sleep. The princess actually feels that little pea through all the cushioning!
Can you believe it?
Well, you can if you’ve ever overdrawn your checking account!
Think of it like this: You’re the princess, your paycheck is the bedding, and the pea is a small overage in your month to month spending.
When you get your paycheck, it feels like a cushion. It “fluffs up” your bank account, and you think it’ll prevent feeling any little peas lurking below.
A “budgeting pea” can be any small increase in spending. For example, maybe…
- The cost of gas goes up a few cents
- The seasons change and the heating bill shoots up
- You buy a (totally reasonably priced) wedding gift
- You’re hosting some friends at your house and have to buy some extra food
These aren’t really emergencies, so it’s not a proper time to use savings. But in encountering this little pea, you may overdraw your checking account.
How do you end that cycle? What’s the fix?
Consider building a better cushion in your checking account.
To my mind, a good “checking cushion” could be anywhere between 25%-100% of your monthly income. (Of course, when deciding if the checking cushion is a good tactic for you, you’ll want to choose an amount that helps YOU sleep well at night!)
This checking cushion does a couple of things:
- It helps take care of the month-to-month disparities in budgeting. Even the best-planned budget can leave something out, or over-account for something else. The checking cushion will grow a little when you’ve under-budgeted, and it’ll decline a little when you’ve over-budgeted, keeping itself somewhat ‘in-check’ over time.
- It allows for easier automation of your bill pay. If your basic bill pay & monthly savings are less than your income (and boy, I hope they are!), you won’t have to worry about over-drawing due to funny timing differences between getting your paycheck and paying an automated bill.
BUT! There is a catch…
In order for the cushion to work as planned, you have to separate the idea that what’s in your checking account is what’s available to spend.
When you have a checking cushion, the cushion amount is the new ’empty.’
If you get below the cushion, you have to build it up again.
To get started building your cushion
If you already have a healthy emergency savings account, simply transfer a small amount from emergency savings into your checking account.
If you don’t already have emergency savings, buckle down for a couple of months to build up your cushion. Check out my post on How to Make Financial Changes that Last to get tips on making the change.
For my overachievers
I work with a lot of very ambitious women who value putting their money to work–i.e. saving, paying down debt, and investing.
To them, the idea of leaving money in checking seems wasteful.
If that’s you, I totally get it!
You may want to try being more hands-on with your finances, checking things daily and monitoring the flow of money through your various accounts. You’ll likely spot an overage quickly and be able to adapt your monthly spending around it.
However, if that sounds like an unsustainable plan, or you want the benefits of automating your finances (fewer financial to-do’s, eliminating the fear that a check will get lost in the mail, more focus on bigger goals), a checking cushion can provide some much-needed relief.
To me, the cushion eliminates some money anxiety, and limits the amount of time I need to be poring over my bank account each month. To me, that’s worth a small sacrifice in potential returns.
If you’ve ever overdrawn your checking account due to non-emergency budgeting overage, consider building a cushion in your checking account.
This could be a great first step for someone who is just starting to get a handle on their finances, but it can also benefit the “intermediate” person who would like to fully automate their finances.
No matter where you are, you can get started today by either cutting back for a few months, or by just taking some of your existing emergency fund for your checking cushion.
So now to you–do you have a checking cushion? Want to build one? Sound off in the comments below!