One of my co-workers was surprised the other day when I told her that my wife and I still have separate checking accounts. We’ve done this on purpose, as we like the continuity of our old accounts, and because it prevents us from stepping on each other’s money. I handle the majority of finances for our family, so I just have my wife transfer me a set amount each paycheck and I take care of the rest. Having separate accounts allows me the freedom to keep my checking account very lean since I don’t have to worry about money being overdrawn accidentally. Being able to use my checking account just for those bills or expenses that warrant it means I can maximize the amount of money I put into higher interest mediums.
The key to making your saved money work for you is maximizing the amount of interest you earn from it. Part of that process is looking for the highest interest mediums you can find in conjunction with the risk level you’re willing to tolerate with that particular money. But another way to maximize your interest income is to simply put more money into those accounts. It’s basic personal finance, the more money we can put in to earn interest the more interest we can earn with the same rate.
Sometimes we use our checking account as a general pool of money to use as we need throughout the pay period, but is it really necessary? If you are able to get a better handle of your budget and be more disciplined in your unplanned spending, you can put your extra money into your savings or investment accounts right when you get it instead of having to wait until your next check to come. Now, two weeks may not seem like a lot but every bit helps when it comes to earning interest, and over time it can really add up. You have to be careful not to put yourself in a position where keeping a lean checking account will get you into other trouble though. If you’re not able to prevent overdraft fees or charges, then you can really put yourself in a worse position financially then you already were. This is why my wife and I having separate accounts works for us. I know the only person I have to worry about is myself, and if I really need to know how much I have in my account at any given time, I use my primary bank’s mobile site to check my balances.
This concept is the basic “float” principle that financial institutions work very hard to master, as each day you have money in your accounts is an opportunity to earn interest from that money. Obviously, for a big bank this can be a huge amount of money on a daily basis. For us it may not be as lucrative, but it’s a way to to truly maximize our current income and make it work as hard as it can for us. How lean do you keep your checking account? Or do you accomplish the same thing in a different way?
May 12th, 2008 at 7:42 am
[…] MITBeta from Don’t Feed The Alligators explains how to use Google apps to track spending, while Joe D from Know The Ledge recommends keeping a lean checking account. […]