What's Your Financial Cushion?

04.09.08 | Money Management | 3 Comments | by junger

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I don't keep a lot of money in my checking account, which we use to pay all of our bills. Why would we? It's a non-interest bearing account from Bank of America that literally only gets used to funnel money in and out.

Money is either coming in via direct deposit, getting automatically sent to pay our bills, or going out to our retirement or housing funds by itself. Since this keeps us on a paycheck-to-paycheck mentality, we like to have a little extra money available: a financial cushion.

Beyond having an emergency fund (which is in a separate, high-yield online savings account), the financial cushion keeps us from worrying that, somehow, a bunch of our transfers will happen on the same day and leave us empty (or worse, overdrafted).

Funny about Money describes his paycheck-to-paycheck safety net of about $500, which will cover his short-term emergency this month.

For us, the financial cushion is a little bit higher — around $600 — mainly because so many of our transactions are automated. For the most part, the transactions happen on the same days every month, but I don't trust our service companies (Sprint, Comcast, etc.) to keep to that schedule.

So, should there be a blue moon and a bunch of transactions automatically happen within a day or two of each other, we're covered.

Do you have a financial cushion? If so, how much?

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