zen habits : breathe

Simple Finances: How and Why to Build Up a Cushion in the Bank

Photo by Todd Ehler

Every Tuesday is Finance & Family Day at Zen Habits.

Recently I began to do something in my bank account that would have been unthinkable to me a few years ago: build a (relatively large) cushion in my account, to allow myself to pay all my bills at the beginning of the month.

It makes more of a difference than you might think.

Building up a cushion in my bank account isn’t a complicated concept: instead of having just about exactly what I need to pay my bills (and transfer for savings), and then getting down close to $0 after all the payments are made and transfers completed, I decided to try to have a larger amount in the account, even after the bills are paid.

Let’s take a look at why, and then how to do it if you’re interested.

Why Build a Cushion
Let’s take a step back for just a second … to understand one reason why I want to build a cushion, you have to understand where I came from: it was only a couple of years ago that I was living paycheck to paycheck. That’s a scary thing for anyone, but especially if you have a family and only one income.

I’ve since improved my finances, mainly by living more frugally, paying my debts, and learning to save for an emergency fund.

But the cushion I’ve been building helps create a sense of even more security, knowing that in addition to my emergency fund, there’s money in the bank in case a bill is automatically deducted without my realizing it, in case I’m out buying something and realize I don’t have enough cash, in case there are charges I’m not aware of.

Besides security, though, there’s an equally good reason to build up a cushion in your bank account: it simplifies your finances. For example, if your cushion is big enough, you can pay all of your bills at the beginning of the month, instead of paying some each paycheck. And in my case, as I do freelance work and get some income from this blog, I get a bunch of checks a month, which can make bill-paying difficult.

There is real value in being able to pay all your bills at once and not have to worry about it for the rest of the month. Paying bills throughout the month can be complicated and stressful. Paying them all at once is simpler, easier, and saves time.

I’ll admit that I could be making more money by taking my money out of my checking account and earning interest or investing it. But I feel that this financial peace of mind, and simplicity, are both powerful reasons to keep that cushion in my account.

How to Build a Cushion in Your Account
So let’s say you are interested in building up a cushion in your bank account, and in simplifying your finances by paying all your bills at once, instead of throughout the month. How do you do it?

Well, there’s no one way, so I can’t give you a step-by-step guide, but here are my suggestions:

  1. Create an emergency fund, then a cushion. Once you’ve saved up an emergency fund of about $1,000 (the minimum you’ll need to start with), then redirect those savings to build your cushion in your checking account.
  2. Use your emergency fund as your cushion. Alternatively, use the emergency fund, temporarily, as a cushion. As long as you don’t spend the entire amount when you pay your bills at the beginning of the month, this is an easy way to get to that cushion quickly.


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