Maintaining a checking account may seem like one of the simpler aspects of money management, but as a financial planner, I know there's still a lot of confusion over that bank balance.

Here's why: Your checking account sees a lot of activity throughout the month, whether it's the bills you have on auto-pay, the direct deposit coming through for your paycheck, or the weekly trips you make to the ATM.

And not all of that movement lines up perfectly throughout the month — especially if you encounter unexpected or higher-than-usual expenses.

Given this, the last thing you want is to stress over a near-zero balance or end up shelling out overdraft fees because you swiped your debit card for groceries before your paycheck cleared.

Enter the cash cushion — the buffer in your bank account that helps ensure your balance never dips too low.

But while you need enough money in there for your own peace of mind, you also don't want to store too much in an account that's really just meant to cover day-to-day transactions and not growing much, if at all.

In trying to strike that perfect balance, I find a lot of people wondering:


Why So Many People Ask This Question: Building up your cash cushion can be a double-edged sword. Since it's easy to have too much or too little, many people are eager to find that just-right Goldilocks number.

Ready to take the next step? A financial advisor can show you how all the pieces of your financial plan fit together.

On the one hand, I have clients who come to me because their low balance has them feeling like they're living paycheck-to-paycheck. And then there are people who are overly cautious and stash too large of a buffer — but find they spend it accidentally.

What I Tell Them: As a general rule of thumb, I recommend storing the equivalent of one month of your take-home pay in your checking account.

This gives you the security of a 30-day cushion — which should give you the peace of mind that you have enough to cover your expenses for the next month. It also safeguards against the stress of being on the verge of overdrafting or feeling unprepared to deal with an unexpected expense.

Just keep in mind that when it comes to a cash cushion, bigger isn't always better. In fact, keeping more than this one-month buffer could have unintended consequences.

First, you'll almost always reap a much higher interest rate in a savings account, and keeping too much in checking means you're likely losing out.

What's more, having a huge cash buffer in your checking account means you’re essentially mixing your checking with money you're treating like savings. That kind of mental tracking is tricky, and can lead you to spend easily accessible money that you hadn't planned to spend.

So once you've built up that one-month balance in your account, I recommend transferring any extra cash into your emergency fund until that's adequately stocked.

Beyond that, you can open a separate savings account for non-monthly expenses, like gifts around the holidays. Or put that money away for longer-term goals, like a down payment on a house.

For these types of goals, I recommend opening a high-yield savings account to capitalize on interest. And I typically suggest opening it with a bank that's different from the one where you keep your checking account. When it takes two to three days to move funds from savings to checking, you’re probably going to be more thoughtful about when you choose to transfer and spend those funds.

If you’re still anxious about not having enough of a buffer to pay your bills, even after you’ve built up one month of pay, I'd recommend keeping a chunk of your savings in an account connected to your main checking account.

This can be a good middle ground: Having that money available for an instant transfer makes it feel more available in case of an emergency, but by not having that savings cash commingled with money in your checking, you’re in less danger of accidentally spending it.

Bottom Line: Store one month’s take-home pay as a comfortable cash cushion in your checking — and then channel any extra cash into separate high-yield savings accounts for your emergency fund, annual expenses and long-term goals.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

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