The room is stark with peeling paint, just concrete floors and a mix of wooden and old metal school chairs arranged in a circle. There’s nervous chatter before we get started, and while many are grasping tightly onto cardboard cups of hot coffee, I’m empty-handed (why can’t anyone provide chocolate milk for us non-coffee lovers? Jeez…). The clock hits the top of the hour, and all nervous small talk ceases as each one of us knows what we’re here to confess but feels to guilty to admit. So I muster up whatever courage I have, stand up, and with a deep breath say, “Hi, my name is Brittney, and I keep too much money in my checking account.” Or at least I used to.
I know, you’re probably thinking, “That’s a problem? Having too much money in the bank? Get real, girl.” But first let me say this: I’m not implying that I’m sitting on mountains of gold here, people. I’m saying that for my day-to-day or even monthly needs, I keep WAY too much sitting neglected with the good old bank man. And why do you ask? Because, well, putting it plain and simple, it acts as my security blanket. I almost have a mini anxiety attack just thinking about wiping my balance down to what I truly need, and that is why it’s been sitting much higher than necessary for the past 5 years or so since I got my first “big girl” job. Le sigh.
Now, for those of you still rolling your eyes at me, hear me out. Keeping all that cash in your checking account does nothing but hurt you. Yes, I said it: you are shooting yourself in the foot just by doing it. And here’s why:
You think those new Ray Bans are a good idea.
When you see all that cash, you think you have more to spend. Don’t feel bad about it – we’re all wired that way. Hell, I managed 3 vacations last year because I was sitting on all those excess dollar bills, and while I don’t know if I would necessarily go back and do anything different, I also could have used that money to put towards retirement or to fixing up my house (like replacing the doorknob on my front door that always seems to fall off). The main thing is that we have to recognize this innate behavior in ourselves, and take conscious steps to avoid it. Out of sight, out of mind, right?
Or in modern terms, identity thieves. Many banks now fully refund any amounts that an identity thief takes, but for me, I don’t necessarily want to trust my money to that promise. Especially A LOT of my money. In fact, I did an online search and couldn’t even find the policy regarding how these refunds are handled at my bank, how much they actually cover, etc. And with the flippant ease with which we all use our debit cards nowadays (be honest, how many of you have lost yours after a night at the bars?), it gets easier and easier for someone to take it and all of your hard-earned dough.
Warren Buffet wouldn’t.
Everything has an opportunity cost, meaning that the cost of every dollar you use/spend is everything else you could have done with that dollar. So the opportunity cost of that extra cash just sitting in your bank like deadweight is having it in a savings or investment account, potentially earning you more money. And if you don’t need it to get by on a monthly basis, why not put it to better use? Let’s be real: do you think Beyoncé or Mark Cuban keep 10% of their net worth in their checking account? Doubt it. So why would you?
At the beginning of the year, I recognized the error of my ways, and decided to move a large chunk of cash to an online savings account. I have no cards associated with it, so the chance of someone getting access to my money is minimized. In addition, by allocating it there, it’s allowing me to get to my goals of a new car and kitchen remodel faster. On top of that, I’m earning interest – granted, it amounts to less than the cost of a nice dinner date each month, but hey, something is better than nothing.
How do you figure out if you’re holding on to too much cash? Calculate how much money you would need in cash to cover your monthly expenses if you didn’t get paid for an entire month and add a 10-20% buffer. For instance, if all your expenses equal to $2,500 for the month, you would need to keep $2,750 to $3,000 in your account. And don’t forget to include those periodic payments, like auto insurance or vacations, in that calculation. Have more than that calculated amount and you’re wasting precious dollars. And ain’t nobody got time for that.