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Beyond the Balance: Why Relying Solely on Your Checking Account Balance Can Be Problematic

Updated: Jan 19

When it comes to budgeting, many people start with their checking account balance. It makes sense; a checking account is where your money comes and goes. However, relying solely on your checking account balance can be problematic for several reasons. In this post, we'll explore why taking a more comprehensive approach to managing your finances is essential and why there are limitations to solely relying on your checking account balance as a budgeting tool.


The checking account balance mirage

When you look at your account balance, all nice and fluffy-- staring at you with adoring eyes, it's as if it's saying, "look at how much money we have!!" Which, YES, let's celebrate that! And... let's also notice the other side of that coin.


For example, if you see $6,000 in your checking account at the beginning of the month, I would guess that at least half of that will go towards one expense or another: rent, your phone bill, a wedding present-- the list goes on. Although you see $6,000 as your balance, you may only have $2,500 available. That's the checking account balance mirage. You can find a few other examples in another blog post here.

a vast open desert

Using your spending plan (budget) instead

When you use some type of money management (a spending plan or budget), you have the most accurate look at your available funds versus your checking account balance.

Picture this with me-- think of your income as one giant bucket. Then, allocate that money to different buckets, which you can peek into at any point in the month to see what's inside. Some people love to have a few buckets to watch over, which is a simpler spending plan. In contrast, others like to have many buckets and move money from one to the other as needed.

Are there other analogies that could work here?

Shoe boxes of money?

Measuring cups of money?

You can pick your analogy preference and roll with it!


What is being overlooked?

Here's a list of items that can be missed when just using a checking account balance in decision-making: pending transactions, credit card transactions, liability requirements, and savings goals.


Pending transactions

Remember that check you wrote for your storage unit stuffed with an entire houseful of items? No, just me? If you still write checks, you know those babies can take a long time to clear your account. Which means it's money spent but not yet reflected in your balance.


Credit card transactions

Your checking account balance does not indicate how much you've spent on your credit card. Your checking account is entirely out of the loop on those transactions.

Q: But guess what would know that?

A: Your spending plan!


Your liability requirements

Any loan payments coming due are not reflected in your checking account balance. A spending plan would ensure you're keeping money earmarked for those upcoming due dates.


Your savings goals

Don't forget to consider how much you want to transfer to savings from your checking account balance.

Hot Tip: make this piece of the puzzle automated. You'll thank me later!


Keeping too much money in your checking account

Sometimes, financial disorganization can keep us from earning the most with our money. If we know how much money we need and when, we can keep our savings in a High Yield Savings Account and earn some interest instead of keeping it nervously in our checking account "just in case."

a woman biting her nails

Lack of tracking

If we've connected on Instagram, you may already know that one of my favorite topics is making money predictable. That comes with setting up some form of money management. Knowing where your money went is nearly impossible using only your checking account balance. According to a Mint study of 1,500 people, 65% stated they didn't know how much money they spent last month.

If that's you, it doesn't have to be anymore!


In conclusion

That's almost a wrap, folks. Let's end with what life can look like if you know where your money is going and using something other than just your checking account balance:

  1. Reduced regret for overspending

  2. Reduced stress... no more "Is the money going to be there?" thoughts

  3. Financial confidence

  4. Bye bye checking account mirage

If you found any golden nuggets in this post, please share with someone you think would find it helpful.


Here's to you,

Melissa Mittelstaedt

Money Coach | Accredited Financial Counselor®

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