Here’s What I Do With the Money in My Checking Account

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When money goes into my checking account, it’s used for one of four things. Read on to learn where deposited funds end up. 

Like most people, I have a checking account that money is deposited into on a regular basis when I get paid. I want to make sure I am using my hard-earned money as wisely as possible, so after money goes into my checking account, I have a careful plan for what to do with it.

Here’s what happens to the funds in my account.

A cushion to prevent overdrafts

One of my rules regarding my checking account is to always keep a cushion in it to prevent overdrafts or bounced checks. Overdraft fees can be expensive, running around $35 per transaction. And bounced check fees can run between $10 and $40, depending on the bank. I don’t want to get hit with these costs.

To make sure I don’t end up making a mistake that leads to an overdraft or a bounced check, I always keep a cushion of $1,000 in my account. Basically, I treat having a $1,000 balance as the equivalent of having a $0 balance and I don’t let my account drop below this amount.

This may be a lot for some people to keep as a cushion, but you can decide how much makes sense for you. Even an extra $250 or $500 in the account could save you from problems. The key is to make sure you have something there if you can so you aren’t at risk of dropping below $0 if you forget about an expense.

Automated transfers

I want to make sure I am putting enough money into my savings accounts and my brokerage accounts, so I have set up automated transfers of funds into these accounts.

I determined how much I need to invest for retirement and for other big purchases and goals like my vacation fund, and this money comes right out of my checking account the day my paycheck hits it. That way, it always goes exactly where it needs to go.

Automatic bill pay

The next thing I do with the money in my checking account is use it to pay bills. I’ve made this process automatic as well. My mortgage and credit card bills are set up to be paid automatically directly out of my bank account on the days I get paid.

That way, I know there is money in there to cover these bills and I never make a mistake and end up paying late and facing the consequences of doing so.

Spend the rest

Finally, any other money left over in my checking account is available for spending. Since I know that I have a cushion in the account to prevent overdrafts and I have my savings and bills being paid automatically, any money that is left is mine to do what I want with so I can spend it guilt free.

This system really works well for me because everything happens automatically and each dollar in my checking account has a purpose — even if that purpose is to have fun with it. I don’t need to think about what to do with the money since it’s all set up to work well for both my current spending needs and my future goals.

Your plan for what you do with your checking account may be different from mine. The important thing is to have a plan, because otherwise you may find you’re not using the money as wisely as you should be.

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