Most people are acquainted with the concept of a checking account. In fact, the average adult uses the same checking account for over 14 years!
Did you know there are certain ways of using your checking account that are more beneficial than others?
We’ll share tips to help you maximize your checking account and make your money work for you.
Why You Should Keep a Low Checking Account Balance
Most of us assume we should keep as much money in our checking account as possible. A high balance equals wealth and opportunity, right?
Initially that seems to be the case. But keeping your account balance low can actually be more beneficial. This is especially true when it comes to growing your money and putting yourself in a better situation for the future.
When you leave cash in a checking account, it can't work for you. It's sitting there, waiting to be spent or directed to another place.
The advantages that come with keeping your balance low include the following:
Keep Track of Your Spending
If you maintain a high checking account balance, chances are you feel confident you have enough money to cover your everyday expenses, and you don't have to think too much before making a purchase.
This sounds great – but there’s a catch. Because you have a high balance and aren't as careful with spending, you'll likely be more inclined to make frivolous purchases.
When you maintain a high balance and aren't conscious of everyday spending, you might struggle later on when the time comes to make bigger purchases. For example, when you try to buy a house and can't get a loan because you don't have much money saved, you might find yourself wishing you'd transferred some of that checking account balance elsewhere.
Catch Fraudulent Transactions Faster
Keeping a high balance can make it harder for you to catch fraudulent transactions, too. You might not see right away if strange purchases occur since you won't notice a small decrease in your total balance.
If you only have a few hundred dollars in your account, you're going to be more likely to spot a random transaction than if you had several thousand in there.
Enjoy Bigger Returns
There aren't many benefits that come with maintaining a high checking account balance, other than the knowledge that you have your money all in one place.
But if you move that money around and deposit it differently, you can yield more significant returns and accumulate more wealth over time.
By adjusting the focus on your long-term financial situation, you can help to ensure you and your family are set up for the long haul and not just for the near term.
Where Should You Put Your Money Instead?
So it's not ideal to keep all your money in your checking account, but where are you supposed to put it?
There are lots of ways you can use your money that will yield bigger returns and help to set you up for success and financial freedom. Here are a few ways you can use your money instead of adding it to your checking account balance:
Pay Down Debt
The average American carries approximately $6,194 in credit card debt alone. Does this sound like you, or maybe you have other types of debt?
Instead of keeping all your money in your checking account, allocate as much as you can to paying off debt. By doing this, you can save yourself from having to pay extra fees each month. Paying down debt can also boost your credit score and eliminate the stress of debt sooner.
Plus, you get returns right from the start by lowering the amount due on your original balances.
High-Yield Savings Account
You earn very little interest on the money kept in your checking account. By transferring a portion of your earnings to a high-yield savings account, such as a Certificate of Deposit account or an online savings account, you can earn more in interest and grow your money that much faster.
Even if (and especially when) you're young, you should be thinking about saving money for retirement. The sooner you start, the more you'll have later on. So get started!
If your job offers a 401(k) plan, be sure to take advantage of it. This is especially important if your employer matches your contributions. For those who are self-employed or looking for a way to save additional money for retirement, an IRA (short for Individual Retirement Account) or Roth IRA is a good alternative.
Have you been interested in investing in the stock market? If so, consider moving some of the extra money in your checking account over to a brokerage account, which you can use to trade stocks, mutual funds, and options.
This can yield big returns, but the risk is also higher than the options above. For that reason, start small and be sure to research your investments before you commit a large portion of your money.
Time to Make Your Money Work for You
There are many advantages that come with changing the way you think about your checking account. Instead of keeping as much money in that account as possible, spread it around. Think of your checking account as the last place to keep money after you've paid yourself and invested in your future – not the first place to keep your balance.
If you want to learn where to put your money, read this post on how to earn the most on your savings is a great one to check out next.